If hydrocarbons are renewable- then is "Peak Oil" a fraud?by Joel Bainerman

Are hydrocarbons "renewable"- and if so- what does such a conclusion mean for the future of the world's oil and natural gas supplies?

The question is critical due to the enormous amount of coverage the issue of "Peak Oil" is receiving from the mainstream press. If the supply of hydrocarbons is renewable- then the contrary to the conventional wisdom being touted throughout the mainstream press today- the world is NOT running out of oil.

Unbeknownst to Westerners, there have actually been for quite some time now two competing theories concerning the origins of petroleum. One theory claims that oil is an organic 'fossil fuel' deposited in finite quantities near the planet's surface. The other theory claims that oil is continuously generated by natural processes in the Earth's magma.

One of the world's leading advocates for the theory that hydrocarbons are renewable is Dr. Thomas Gold who contends that oil is not a limited resource, and that oil, natural gas and coal, are not so-called “fossil fuels.”

In his book, The Deep Hot Biosphere: The Myth of Fossil Fuels, he explains that dinosaurs and plants and the fossils from those living beings are not the origin of oil and natural gas, but rather generated from a chemical substance in the crust of the Earth.

Dr. Gold: "Astronomers have been able to find that hydrocarbons, as oil, gas and coal are called, occur on many other planetary bodies. They are a common substance in the universe. You find it in the kind of gas clouds that made systems like our solar system. You find large quantities of hydrocarbons in them. Is it reasonable to think that our little Earth, one of the planets, contains oil and gas for reasons that are all its own and that these other bodies have it because it was built into them when they were born? That question makes a lot of sense. After all, they didn’t have dinosaurs and ferns on Jupiter to produce oil and gas?"

He continues: "Human skull fossils have been found in anthracite coal in Pennsylvania. The official theory of the development of coal will not accept that reality, since human beings were not around when anthracite coal was formed. Coal was formed millions of years ago. However, you cannot mistake the fact that these are human fossils."

"The coal we dig is hard, brittle stuff. It was once a liquid, because we find embedded in the middle of a six-foot seam of coal such things as a delicate wing of some animal or a leaf of a plant. They are undestroyed, absolutely preserved; with every cell in that fossil filled with exactly the same coal as all the coal on the outside. A hard, brittle coal is not going to get into each cell of a delicate leaf without destroying it. So obviously that stuff was a thin liquid at one time which gradually hardened."

Gold claims that the only thing we find now on the Earth that would do that is petroleum, which gradually becomes stiffer and harder. That is the only logical explanation for the origin of coal. So the fact that coal contains fossils does not prove that it is a fossil fuel; it proves exactly the opposite. Those fossils found in coal prove that coal is not made from those fossils. Where then does the carbon base come from that produces all of this?

Says Dr. Gold: "Petroleum and coal were made from materials in which heavy hydrocarbons were common components. We know that because the meteorites are the sort of debris left over from the formations of the planets and those contain carbon in unoxidized form as hydrocarbons as oil and coal-like particles. We find that in one large class of meteorites and we find that equally on many of the other planetary bodies in the solar system. So it’s pretty clear that when the Earth formed it contained a lot of carbon material built into it."

Dr. Gold's ideas would lead us to believe that there is so much natural gas in the earth that it is causing earthquakes in trying to escape from the Earth. If you’ll drill deep enough anywhere, you will find natural gas. It may not be in commercial quantities every time, but more than likely it will be.

Is the oil and gas industry reconsidering things in light of his work?

Absolutely not.

"In many other countries they are listening to me: in Russia on a very large scale, and in China also. It is just Western Europe and the United States that are so stuck in the mud that they can’t look at anything else."

What do the Russians know that the West don't?The roots of Dr. Gold's theories are in Russia where scientists since the end World War II have been researching what is referred to as the "Modern Russian-Ukrainian Theory of Deep, Abiotic Petroleum Origins."

Although the theory was first expounded upon by Professor Nikolai Kudryavtsev in 1951 it is not the work of any one single man but has been developed by hundreds of scientists in the (now former) U.S.S.R..

The theory of deep, abiotic petroleum origins is not a vague, qualitative hypothesis, but stands as a rigorous analytic theory within the mainstream of the modern physical sciences. In this respect, the modern theory differs fundamentally not only from the previous hypothesis of a biological origin of petroleum but also from all traditional geological hypotheses.

Actually, since the nineteenth century, knowledgeable physicists, chemists, thermodynamicists, and chemical engineers have regarded with grave reservations (if not outright disdain) the suggestion that highly reduced hydrocarbon molecules of high free enthalpy (the constituents of crude oil) might somehow evolve spontaneously from highly oxidized biogenic molecules of low free enthalpy. Beginning in 1964, Soviet scientists carried out extensive theoretical statistical thermodynamic analysis which established explicitly that the hypothesis of evolution of hydrocarbon molecules (except methane) from biogenic ones in the temperature and pressure regime of the Earth's near-surface crust was glaringly in violation of the second law of thermodynamics.

The theory of deep, abiotic petroleum origins is presently applied extensively throughout the former U.S.S.R. as the guiding perspective for petroleum exploration and development projects. There are presently more than 80 oil and gas fields in the Caspian district alone which were explored and developed by applying the perspective of the modern theory and which produce from the crystalline basement rock.

Similarly, such exploration in the western Siberia cratonic-rift sedimentary basin has developed 90 petroleum fields of which 80 produce either partly or entirely from the crystalline basement. The exploration and discoveries of the 11 major and 1 giant fields on the northern flank of the Dneiper-Donets basin have already been noted. There are presently deep drilling exploration projects under way in Azerbaijan, Tatarstan, and Asian Siberia directed to testing potential oil and gas reservoirs in the crystalline basement.

Is "Peak Oil" a fraud?So why is the western media being inundated with notions of the world running out of oil?

One could point a finger at the multinational oil companies and their vested interest in having the price of a barrel of oil rise substantially- to justify further exploration expenses- and of course- to bolster their bottom line.

Says Dr. J.F. Kenney, a long-time research on the origins of hydrocarbons:

"For almost a century, various predictions have been made that the human race was imminently going to run out of available petroleum. The passing of time has proven all those predictions to have been utterly wrong. It is pointed out here how all such predictions have depended fundamentally upon an archaic hypothesis from the 18th century that petroleum somehow (miraculously) evolved from biological detritus, and was accordingly limited in abundance."

That hypothesis has been replaced during the past forty years by the modern Russian-Ukrainian theory of abyssal, abiotic petroleum origins which has established that petroleum is a primordial material erupted from great depth. Therefore, according to Kenney, petroleum abundances are limited by little more than the quantities of its constituents as were incorporated into the Earth at the time of its formation.

As far back as 1757, in his address at the Imperial Academy of Sciences in St. Petersburg, Academician Mikhailo V. Lomonosov, stated:

"Rock oil originates as tiny bodies of animals buried in the sediments which, under the influence of increased temperature and pressure acting during an unimaginably long period of time, transform into rock oil [petroleum , or crude oil]"

More than 200 years later, Professor Emmanuil Chekaliuk told the conference on Petroleum and Petroleum Geology in Moscow that:

"Statistical thermodynamic analysis has established clearly that hydrocarbon molecules which comprise petroleum require very high pressures for their spontaneous formation, comparable to the pressures required for the same of diamond. In that sense, hydrocarbon molecules are the high-pressure polymorphs of the reduced carbon system as is diamond of elemental carbon. Any notion which might suggest that hydrocarbon molecules spontaneously evolve in the regimes of temperature and pressure characterized by the near-surface of the Earth, which are the regimes of methane creation and hydrocarbon destruction, does not even deserve consideration."

Contrarily, the statistics of the international petroleum industry establish that, far from diminishing, the net known recoverable reserves of petroleum have been growing steadily for the past fifty years. Those statistics show that, for every year since about 1946, the international petroleum industry has discovered at least five new tons of recoverable oil for every three which have been consumed.

As Professor P. Odell of the London School of Economics has put it, instead of "running out of oil," the human race by every measure seems to be "running into oil".

Says Dr. Kenney: "There stands no reason to worry about, and even less to plan for, any predicted demise of the petroleum industry based upon a vanishing of petroleum reserves. On the contrary, these considerations compel additional investment and development in the technology and skills of deep drilling, of deep seismic measurement and interpretation, of the reservoir properties of crystalline rock, and of the associated completion and production practices which should be applied in such non-traditional reservoirs"

If Kenney is correct, not only are any predictions that the world is "running out of oil" invalid, so also are suggestions that the petroleum exploration and production industry is a "mature" or "declining" one.

The impact on the planet of the conclusions of this debateMuch research remains to be done on "alternative" theories of the how much hydrocarbons are left in the world- unfortunately- those entities most able to do this research- the western multinational oil conglomerates- have the least interest in arriving at any conclusion other than those that are part of the "Peak Oil" stream of thought. Today the mainstream press has accepted as a given that the world has only a finite amount of oil and natural gas- and thus any decision taken on how to deal with the world's future needs are based on these conclusions. If they are erroneous- then the world is about to embark on a plan to provide for its energy needs for the coming century based on a false notion.

Research geochemist Michael Lewan of the U.S.Geological Survey in Denver, is one of the most knowledgeable advocates of the opposing theory, that petroleum is a "fossil fuel". Yet even Lewan admits:

"I don't think anybody has ever doubted that there is an inorganic source of hydrocarbons. The key question is, 'Do they exist in commercial quantities?'"

We might never know the answer to that question because both sides of this debate are not being heard by the general public. If the Russians have accepted the theory that hydrocarbons are renewable- and over time they will become the leading exporters of oil and gas worldwide- this fact alone requires these alternative theories of how fossil fuels are created- is required.

It behooves western governments to begin taking these alternative theories seriously- and design future energy policies based on possibility that they are correct. Whatever strategies for meeting the world's ferocious appetite for energy are devised today- will impact the planet for decades to come.

In this issue- we simply can't afford to be wrong.

Joel Bainerman

Joel Bainerman has been a writer on economic and Middle East issues since 1983. His published archive can be viewed on his website at www.joelbainerman.com

WASHINGTON - House Republicans abruptly pulled from floor action Tuesday a bill to open a large area of the eastern Gulf of Mexico to oil and gas drilling after it became clear the legislation lacked the two-thirds vote needed for passage.

The bill, which has already passed the Senate, was to have been one of the last major legislative achievements of this session of Congress.

It would open 8.3 million acres of the Gulf that is now off limits to drilling and also steer hundreds of millions of dollars of federal royalty payments to four Gulf coast states — a windfall for Louisiana, which would get about half the money.

Republicans leaders gave no reason for the decision,

But an aide to a lawmaker strongly supporting the legislation said that a number of Republicans withdrew their support at the last minute and some Democrats also had signaled they would not support the measure.

The aide, who requested anonymity because another attempt is expected on the bill, said GOP leaders planned to revive the bill in a way that only a majority vote is required or attach it to another bill. GOP leaders had put the measure on an expedited schedule, requiring two-thirds approval.

"We have precious little time left," said Sen. Mary Landrieu (news, bio, voting record), D-La., in a statement, adding she remained hopeful the legislation can be taken up later this week.

"The House will revisit the offshore drilling legislation again at some point before the end of this week, though details on the mechanics of how the measure will be considered have yet to be decided," Kevin Madden, spokesman for House Majority Leader John Boehner, said in a statement.

The drilling bill is one of a string of measures House GOP leaders have readied for this week's "lame-duck" session under an expedited procedure that bars amendments, but also requires a two-thirds vote for approval.

Environmentalists have lined up against the bill and some Republicans are cool toward the measure, favoring a more expansive offshore energy development plan that passed the House in June that would have lifted drilling bans along both the East and West coasts. Senate leaders said the House bill had no chance in the Senate.

The Senate-passed bill covers an area 125 miles south of the Florida Panhandle and is up to 300 miles from Florida's Gulf coast. It is believed to contain 1.3 billion barrels of oil and 6 trillion cubic feet of natural gas, enough gas to heat 6 million homes for 15 years. The country uses about 21 million barrels of oil a day.

House leaders have been bombarded by calls from a wide range of business groups — from chemical companies to pulp and paper industries as well as electric utilities and manufacturers — for the House to accept the Senate-passed bill and send it to President Bush for his signature.

Business groups have argued that new offshore energy development might ease natural gas prices, which have dropped significantly this year but still are three times to four times higher than what they were only a few years ago.

"This vote is the last chance Congress can come through for the American public," said John Engler, president of the National Association of Manufacturers, urging the House to pass the Senate bill.

Industry groups had favored the broader House-passed bill, but see the Senate bill as the most that can be expected, and likely more than what can be gotten from the Democratic-controlled Congress next year.

"You take what you can get," said David Palmer, president of the American Gas Association, which represents gas utilities and — like agriculture and the chemical industry — has been struggling with high fuel costs.

But environmentalists argued the new Gulf drilling would increase the chance of environmental damage and have little impact on prices.

"Opening our national coastline to destructive drilling will only add to the billions in profits already being made by Big Oil, do nothing to lower gas prices for American families or energy costs for American businesses, and will keep our nation dangerously dependent on oil," said Athan Manuel of the Sierra Club.

Landrieu, D-La., who helped craft the Senate bill, said the revamped revenue sharing plan would produce huge environmental benefits to the Gulf Coast by providing money for wetland restoration, levee repairs, flood control and hurricane protection. The bill eventually would give states 37.5 percent of royalties from all Gulf oil and gas production, compared with about 2 percent now.

Why relentless green drive may end up costing us the earthJOHN STEWART

SPRING in Malaysia is even more silent than it was when I reported how the indigenous jungle is being destroyed to provide palm oil for the Soil Association's "environmentally-friendly" pesticide soft soap.

More great swathes of the eco-system are being replaced by oil palms to supply Europe with the biodiesel it must have by next year to comply with Directive 2003/30/EC requiring 5 per cent of road fuel to come from biological sources.

Both outcomes are typical results of green intervention in the market. They have not grasped that, to succeed, intervention must be complete and global - anything less merely creates a distortion used by shrewd businessmen to exploit the public purse, usually with further damage to the environment.

Locally, nationally or internationally, green policies are a dreary saga of intervention, unforeseen consequences and further intervention, with the environmental balance sheet always in the red.

A bit like the Red Queen, in the lexicon of green speak, words mean whatever they want them to mean so the temporary, short-term generation of landfill gas in rubbish dumps is deemed to be "sustainable" and electricity generated by burning it qualifies for Renewables Obligation subsidies, currently standing at about £48 per megawatt hour.

Curiously, nuclear - based on an estimated 4,000 years' supply of uranium - is not sustainable. This encouragement to create landfill sites conflicts with the EU directive requiring less rubbish to go to landfill and more to composting or incineration. But both these operations require extensive transporting of waste to central facilities.

Burning chicken dung to generate subsidised electricity and replacing it with artificial manure with a carbon price of 5.7 tonnes of per tonne of fertiliser is another dismal entry in the environmental ledger, but the ultimate in "double speak" - less is more - is reserved for hydroelectricity.

Prior to 2002, hydroelectric stations of over 20MW capacity were excluded from Renewables Obligation subsidies. However, on 1 April, a date that made many people wonder if it really was a prank, the government quietly announced that stations above that level could be deliberately reduced in capacity to qualify.

Generating companies, among them Scottish & Southern Energy, promptly decommissioned alternator windings by between 18 and 47 per cent to reduce hydro capacity by a total of 59MW, achieving their goal of less renewable electricity but more profits at the expense of the environment.

Overall, I reckon green policies in Scotland have considerably increased emissions and I'm not including the extra given off by peat disturbed during wind power station construction. Nothing convinces me that it is any different.

Taking a global outlook, the recommendation in the Stern report for international carbon trading will simply become another mechanism for taking money from poor Europeans and giving it to a very few, very wealthy Third World dictators who will sell their countries' carbon entitlement to line their own pockets. Carbon dioxide is the same whoever emits it and carbon trading will make no overall difference.

Already, national morale is wilting under the relentless green propaganda message that our lifestyle is "trashing the planet" and creating "climate chaos". It will take more than a few thousands spent on Glasgow's happiness centre to offset that and who in their right mind would chose to have children in a collapsing, chaotic world?

We will never achieve anything in response to climate change until we return to hard science, free-market economics, evidence-based policies and democratic accountability.

Today's NY TimesThe Energy ChallengeThe Cost of an Overheated Planet By STEVE LOHRPublished: December 12, 2006The iconic culprit in global warming is the coal-fired power plant. It burns the dirtiest, most carbon-laden of fuels, and its smokestacks belch millions of tons of carbon dioxide, the main global warming gas.

The Energy ChallengeFossil Fuel Economics Articles in this series are examining the ways in which the world is, and is not, moving toward a more energy efficient, environmentally benign future.

Chris Keane for The New York TimesJames E. Rogers, chief executive of Duke Energy and chairman of a leading utility trade group, at an electrical substation in Charlotte, N.C. So it is something of a surprise that James E. Rogers, chief executive of Duke Energy, a coal-burning utility in the Midwest and the Southeast, has emerged as an unexpected advocate of federal regulation that would for the first time impose a cost for emitting carbon dioxide. But he has his reasons.

“Climate change is real, and we clearly believe we are on a route to mandatory controls on carbon dioxide,” Mr. Rogers said. “And we need to start now because the longer we wait, the more difficult and expensive this is going to be.”

Global warming is not only an environmental hazard, but also a great challenge for economic policy. Without economic incentives, analysts say, the needed investments in industrial cleanup, innovative low-carbon technologies, fuel-efficient cars and other ways of reducing energy waste will not occur.

Mr. Rogers’s stance is far from universal within the power industry, but it has surprising support, particularly from those, like him, who also produce electricity from carbon-free nuclear reactors.

And despite the Bush administration’s adamant opposition to any limits on fossil fuel emissions, the idea is beginning to pick up momentum in the American political arena as well. Already, California has adopted a policy aimed at reducing the state’s contribution to global warming by 25 percent in the next 14 years.

In Washington, several influential lawmakers, including Senator John McCain, a leading Republican contender for president in 2008, have introduced legislation intended to limit the nation’s carbon dioxide output.

But how would those goals be achieved? Global warming can be seen as a classic “market failure,” and many economists, environmental experts and policy makers agree that the single largest cause of that failure is that in most of the world, there is no price placed on spewing carbon dioxide into the atmosphere.

Yet it is increasingly clear that there is a considerable cost to carbon dioxide emissions, especially to future generations, as climate specialists warn of declines in farm output in poor tropical countries, fiercer hurricanes and coastal floods that could make many people refugees.

Price List for Polluting

“Setting a real price on carbon emissions is the single most important policy step to take,” said Robert N. Stavins, director of the environmental economics program at Harvard University. “Pricing is the way you get both the short-term gains through efficiency and the longer-term gains from investments in research and switching to cleaner fuels.”

Some academics see an analogy between a global warming policy and the pursuit of national security in the cold war. In the late 1950s, American military spending reached as high as 10 percent of the gross domestic product and averaged about 4 percent, far higher than in any previous peacetime era. A Soviet nuclear attack was a danger but hardly a certainty, just as the predicted catastrophes from global warming are threats but not certainties.

“The issues are similar in that you pay now so things are less risky in the future — it’s an insurance policy,” said Richard Cooper, a Harvard economist. “And in the cold war, we taxed ourselves fairly highly to mitigate that threat.”

What makes such a view more than a conceptual argument is that executives like Mr. Rogers, who is also chairman of the Edison Electric Institute, a utility trade group whose members provide 60 percent of the nation’s electric power, are also pushing for a carbon dioxide-pricing policy to reduce the risk to their companies.

They say that only with some sort of federal policy in place — which would probably take the form of a tax on carbon dioxide waste from any source, or a “cap and trade” regulatory system — will it become clear what carbon cleanup or fuel-switching moves their companies may have to make, and on what sort of timetable.

Investors in alternative energy projects also emphasize the need to set policy priorities.

“We need a policy framework for the long term,” said Vinod Khosla, a leading environment-oriented venture capitalist. “Fifteen years is the minimum horizon of stability that we need.”

Beyond incentives for business, a national global warming policy should include increased federal spending on research on futuristic technologies to curb carbon emissions, advocates say.

Combating global warming, they say, will require over-the-horizon breakthroughs involving safe nuclear energy, hydrogen power and advanced carbon sequestration — or technologies that have not yet been imagined.

But even today, there are sizable opportunities, by insisting on more efficient energy use, that are not being seized, according to the McKinsey Global Institute. In a new report, the institute, a business-oriented research group that is part of McKinsey & Company consultants, estimated that the yearly growth in worldwide energy demand could be cut by more than half through 2020 — to an annual rate of 0.6 percent from a forecast 2.2 percent, using current technology alone.

========

Page 2 of 3)

Available steps that would yield a more productive, and efficient, use of energy include compact fluorescent lighting, improved insulation on new buildings, reduced standby power requirements and an accelerated push for appliance-efficiency standards.

Carbon’s Possible Future All these moves, McKinsey said, would save money for consumers and businesses. “We were really surprised by these huge straightforward opportunities that are not being taken,” said Diana Farrell, the McKinsey Global Institute’s director. “In some senses, there is a big market failure.”

Energy efficiency can help slow the pace at which the risk from global warming risk increases, but it cannot reverse the trend alone. In the very long term, environmental experts say, the world’s economy needs a technological transformation, from deriving 90 percent of its energy from fossil fuels today to being largely free of emissions from fossil fuels by 2100, through cleanup steps or alternative energy sources.

Science and Uncertainty

Given all the uncertainties, the scientists and economists who design and run simulations of global warming policy acknowledge that their work is at best a tool for thinking about climate change issues.

Still, they tend to agree that over the next 50 years, the cost of slowing and eventually reversing carbon emissions growth will be 1 to 2 percent of global economic output. They assume the focus over those years will be mainly on efficiency and cleaning up electricity generation.

In later years, their cost projections become more varied, ranging from 1 percent to as high as 16 percent of global output, depending on assumptions about how difficult it will be to wean the world’s vehicle fleet from fossil fuels, and to make other technological leaps.

“Going past 2050, the cleverness really has to kick in,” said John M. Reilly, an economist at the M.I.T. Joint Program on the Science and Policy of Global Change.

A global warming policy would be shaped first by science and social values, before economics. A sensible goal, according to many environmental specialists, is to try to avert a doubling or more of atmospheric concentrations of carbon dioxide in this century.

“This is not something that goes on inside a computer, but a grand political calculation,” said Stephen H. Schneider, a climate expert at Stanford University.

Yet even in realms of social policy, where uncertainty is high, there is an implicit calculation of costs and benefits. In the case of global warming, the cost of society’s insurance policy may well be worth it, measured in the damage averted.

But it will not be cheap. Take the experts’ consensus estimate that curbing carbon dioxide emissions over the next 50 years will, on average, cost about 1 percent of global economic activity annually.

It seems a modest figure. Yet in today’s terms, 1 percent of the United States economy is more than $120 billion a year, or $400 a person.

Put another way, $120 billion is about equal to the Bush administration’s tax cuts in 2001; it is also roughly the amount spent on the Iraq and Afghanistan wars this year.

“There’s no easy way around the fact that if global warming is a serious risk, there will be serious costs,” said W. David Montgomery, an economist at Charles River Associates, a consulting group.

A price on carbon dioxide emissions, most economists agree, would be the most efficient way to combat global warming. And the price, they say, should start small to give industries time to adapt, then ratchet up over the years to encourage long-term investments in energy saving, carbon cleanup and new technology.

The two methods of pricing carbon are to charge a tax on each ton of carbon dioxide emitted into the air, or to place a cap on total emissions and then let polluters trade permits to emit a ton of carbon dioxide.

Economists like William D. Nordhaus of Yale and Mr. Cooper of Harvard advocate a tax as the clearest price signal to the energy marketplace, and less susceptible to political tampering and market manipulation than a cap-and-trade system. It could also be used to raise revenue to offset other taxes.

In a recent paper, Mr. Cooper suggested an initial tax around $14 a ton of carbon dioxide emitted, which he calculated would translate roughly into a 100 percent tax on coal and add 12 cents to each gallon of gasoline. Such a tax would raise as much as $80 billion a year in the United States.

“There’s nothing sacred about the number,” he said, “but you need to get a significant price into the system to create the incentive for people to go out and look for solutions.”

A Quota or a Tax?

===========(Page 3 of 3)

Economically, a cap-and-trade system has the same goal as a tax, putting a price on carbon dioxide emissions, but goes about it differently. A limit would be placed on overall emissions, with polluters allocated permits. Then, companies able to go below their emission targets would be allowed to sell their unused “permits to pollute” to companies that could not.

Carbon’s Possible Future A cap-and-trade system also has some political advantages. It can deflect the anger over higher costs and enable governments to use their allocations to essentially buy political support, since permits are the equivalent of cash. Big polluters, who will have to invest most to clean up, could be granted extra allowances in the early years of the program to subsidize their investments.

In the United States, caps and trading have a record of success in combating acid rain, which is caused by sulfur dioxide emissions from fossil fuel power plants.

“People said it was a crazy idea, too complicated and too regulatory,” said Richard L. Schmalensee, an M.I.T. economist who was an economic adviser to the first President Bush when the sulfur emissions program was designed. “But the lesson learned was that a cap-and-trade system can work.”

The global warming legislative proposals before Congress — including one sponsored by Senator McCain and Senator Joseph I. Lieberman of Connecticut, and another by Senator Jeff Bingaman of New Mexico — envision cap-and-trade systems.

But the challenge of controlling carbon emissions is far greater than sulfur. Carbon dioxide is a pervasive byproduct of the economy, and the polluters are many and varied. Once emitted, carbon dioxide is vexingly long-lived in the environment.

The early struggles of the European Union’s carbon emission trading system, set up last year, point to the administrative and political difficulties. The European governments, responding to lobbying by domestic businesses, handed out permits that exceeded the emissions that most companies were already putting into the air. When that became clear in April, the market price of carbon dioxide emissions fell by half.

Senator Barbara Boxer of California, who will soon take the chair of the Senate environment committee, has pledged to push Congress to impose a price on carbon dioxide emissions, as the Europeans have done.

Yet without coordinated international action, even if the United States — the largest source of carbon emissions — reined them in, this would have only limited effect on global warming. China is on track to surpass the United States as the leading emitter of carbon dioxide by 2009, according to a recent report by the International Energy Agency.

“Unless China and India are brought in, it won’t matter much what the developed world does,” said Scott Barrett, a professor of environmental economics at the School of Advanced International Studies of Johns Hopkins University.

But developing nations like China and India, energy specialists say, would certainly avoid joining any international effort on global warming without an emphatic move by the United States.

“Every year we delay, we contribute to another year of delay in China, India and elsewhere,” said Jason S. Grumet, executive director of the National Commission on Energy Policy, a bipartisan group of energy experts. “The ecological and economic imperative is to start now.”

Oil HydraIs there an easy way out of the mess we've gotten ourselves into?

By Victor Davis Hanson

Oil is nearly $100 a barrel. Gas may soon reach $4 a gallon. And Americans are being bitten in almost every way imaginable by this insidious oil hydra.

Two billion people in China and India are now eager consumers. They want the cars, gadgets, and lifestyle that Westerners have claimed as a birthright for a half-century. Their growing energy appetites mean that the international petroleum market may remain tight, even if Americans — who use almost twice as much oil per day as China and India put together — cut back on imported energy.

The Middle East is raking in billions each week. At best, our so-called friends in cash-laden Saudi Arabia subsidize fundamentalist mosques and hate-filled madrassas worldwide. At worst, our enemies in petrol-rich Iran are after the bomb, send weapons into Iraq to kill Americans and fund Hezbollah jihadists.

War in Iraq, rumors of fighting in the near-future in Iran and tension on the West Bank only panic markets, raise oil prices and further enrich our grinning enemies.

The nearly half-trillion dollars we will soon pay for imported oil does a lot more than prop up Russia's Vladimir Putin, Venezuela's Hugo Chavez and Iran's Mahmoud Ahmadinejad. The petrodollar drain also contributes to our trade deficits, falling dollar and a general demoralization of the American people.

Our oil habit not only makes us dependent on some creepy suppliers, but we look like fools as we work nonstop to hand over our earnings to those who are rich by an accident of sitting atop oil someone else found and developed.

There is talk in this country of a gradual transition to alternative fuels, solar power, wind machines, plug-in electric cars, and nuclear power. Supposedly Americans will soon be less dependent on imported oil — while helping to slow global warming — as we are weaned off our fossil-fuel addiction.

But let's talk about the present: If oil continues to climb, ultimately, it will change our very way of life. Hard-pressed families will shell out thousands more a year in direct transportation and heating and cooling costs, and more still as consumer prices inflate.

It may have always been unwise for commuters to buy large SUVs and V8 supercab trucks. Now, though, we may reach the point where these pricey huge vehicles will sputter to a halt. Indebted Americans will still shell out monthly payments to pay off their parked dinosaurs, only to drive them for emergency or ceremonial occasions.

Also expect rising popular anger at an asleep-at-the-wheel government that for the last 20 years should have been doing a lot more to mandate conservation, subsidize alternate fuels, encourage nuclear power and open up oil fields offshore and in Alaska.

Instead, doctrinaire free-market purists and radical environmentalists, hand in glove, for years have thwarted both conservation and exploration.

True, in a perfect world, the market would teach Detroit not to build gas-hungry big cars. Yet in the here and now, we are needlessly burning scarce fuel as too many 7,000-pound mammoths deliver single 180-pound drivers to work — while the auto industry continues on its path to irrelevance.

Meanwhile, green politicians may not want messy oilrigs off their coasts, or tankers up north among the ice and polar bears. But so far very few of them have sworn off jet travel, nice cars or ample homes.

Oil companies claim that they are only passing along escalating costs from overseas suppliers over which they have no control. But around a third of our oil is pumped here at home.

Think about it: The cost to extract oil from existing older wells is relatively fixed. For much of the 1990s and early 2000s, oil prices had been steady at between $20 and $30 a barrel (when adjusted for inflation) — and domestic oil companies did quite well. So now at near $100 a barrel, these corporations are raking additional profits of over $60 a barrel — potentially a domestic windfall of hundreds of billions of dollars each year.

Is there an easy way out of the mess we've gotten ourselves into?

Maybe a Silicon Valley genius inventor or entrepreneur will step forward with a breakthrough new energy source.

Maybe our government will start a crash project on the scale of the Manhattan Project to conserve and produce more fuels.

Maybe China and India will consider radical conservation measures.

Maybe countries like Iraq, Libya, and Russia will start reinvesting in their oil infrastructures and double production.

Maybe the Middle East will finally settle down and soothe jittery oil speculators.

Those are too many maybes to wait for while our way of life hangs in the balance. It is past time to demand from our presidential candidates, as well as the current government, exactly when and how they plan to slay this many-headed oil monster.

Nuclear energy emerged as a clear answer to the oil shocks of the 1970s, growing from near-irrelevance early in that decade to supply almost one-third of Western European power needs by 1990. Today, as oil prices continue their unrelenting ascent and concerns mount over climate change, some argue that Europe needs a nuclear renaissance. But this time, things are slightly different.

At the moment, 32 nuclear power plants are under construction around the globe, totaling roughly 27 electrical gigawatts. Europe is home to only three of these plants, or 13% of the capacity, with one reactor in Finland and two in Bulgaria. Europe is lagging behind other regions because new nuclear stations face not only the obvious political obstacles but commercial ones as well, despite the current high price of power.

A primary commercial issue is the significant slowdown in electricity demand growth. In the 1970s and '80s, annual demand growth for power averaged 3.2% and 2.6%, respectively. Power demand has been growing by a much more modest 1.6% this decade. Higher energy prices are encouraging large power users to implement efficiency measures or even relocate industrial plants outside of Europe. Power demand growth may move below 1% a year in the next decade. In this environment even existing plants are threatened, though policy makers are raising serious questions about earlier decisions to retire nuclear power plants in Germany and elsewhere across Europe.

What's more, renewable energy sources -- particularly wind, small hydro plants and biomass -- have been growing quickly in the past few years, thanks in part to EU energy policy. Europe is close to meeting its target of using renewables to produce 21% of its electricity generation by 2010. According to the EU's "Renewable Energy Road Map," published in January 2007, Europe will probably reach 19% by 2010, and Brussels is evidently quite serious about full compliance. The European Commission has begun infringement proceedings against six member states for not fulfilling their renewable-energy obligations. A second push toward renewables comes from an ambitious, binding target of 20% for all EU energy needs by 2020. Besides electricity, we should expect renewable sources to increasingly cover other needs, such as heating for homes.

As electricity demand continues to slow down, the use of conventional sources -- oil, natural gas and coal -- should stabilize or even decline versus current levels. Rather than working to meet increasing energy needs, as in the '70s and '80s, the challenge is to replace existing and aging oil-, gas- or coal-fired power plants more efficiently. The need to replace this existing capacity will be more acute toward the end of the next decade, so the incentive to build new nuclear stations appears less pressing for the moment. Nevertheless, these plants take a long time to be built, so planning is critical. In Finland, the construction process is taking six years, rather than the four years first planned, obliging the world's leading nuclear constructor Areva to make significant financial provisions to cover the higher-than-expected costs.

Another obstacle for nuclear is structural. The electricity industry in the '70s and '80s was typically organized around vertically integrated monopolies, primarily responsible for the long-term planning, building and operation of power stations. There is no doubt that the development of large-scale and highly capital-intensive projects benefited from this market structure, as there was little market uncertainty under such a controlled system. The liberalization process -- started in the late 1980s in the U.K. and extended to the entire EU in the late 1990s -- introduced significant regulatory uncertainties and made high-cost investment decisions riskier for privately owned energy companies.

There are of course a myriad of other issues surrounding nuclear energy, including the safe transport, disposal or storage of nuclear waste, as well as the risks posed by the threat of a terrorist attack. But the commercial challenges alone mean that nuclear energy appears to have a dimmer future.

Mr. Brunetti is senior director for European electricity at PIRA Energy Group.

Energy independence — it has become the buzzword for the 2008 presidential election. We want to move away from Middle East oil, at the very least, in order to keep from being held as economic hostages by hostile governments in the region. We can avoid that by increasing importation from Canada, whose tar sands in Alberta have deep reserves that our friends would like to sell to us. Problem solved, right?Wrong:Quick — what country has the world’s largest oil reserves? Saudi Arabia? Iran? Nigeria? Venezuela? Wrong on all counts. The answer is Canada. And our neighbor to the north is worried we don’t want it.Canada has an estimated 1.6 trillion barrels of oil on its territory, much of it locked in tough-to-excavate tar sands in the province of Alberta. By comparison, oil-rich Saudi Arabia has an estimated 270 billion barrels left. It isn’t even close.Yet, according to the Financial Times of London, Canada’s government recently sent U.S. Defense Secretary Robert Gates a letter of warning that it might not be able to sell the U.S. any of its oil, which the Pentagon desperately needs for national defense.For that, you can thank the Energy Independence and Security Act of 2007, passed with great gusto and self-righteousness by the Democratic Congress.The bill classified oil from tar sands as an alternative fuel, which places restrictions on its use. Unlike regular crude, the US government cannot buy alternative fuels unless they release less greenhouse gas. The tar-sands crude unfortunately doesn’t qualify, and it’s not even close; it produces much more of those emissions than regular crude.The Canadians, needless to say, are nonplussed over this action by Congressional Democrats. They want to sell us the crude, and our armed services could certainly use a reliable source of energy not dependent on mullahcracies and kleptocracies. However, even though we already have reliable and friendly trade with Canada on oil for commercial purposes from these tar sands, the US military will take a pass and stick with the Nigerians, Venezuelans, and Saudis.Does that make any sense at all?Canada will find buyers for its Alberta tar-sands product. American energy companies have already signed up for sales and development, of course, but that’s not where the big sales will go. The Chinese, who are much less picky about where they get the energy supplies for its military, will almost certainly leap at the chance to get in line ahead of the US for the product.It’s precisely this lack of strategic long-term thinking that makes people nervous about putting Democratic leadership in Congress together with Barack Obama or Hillary Clinton in the White House. Congress needs to revisit these restrictions ASAP.

The Biofuels BacklashMay 7, 2008; Page A18St. Jude is the patron saint of lost causes, and for 30 years we invoked his name as we opposed ethanol subsidies. So imagine our great, pleasant surprise to see that the world is suddenly awakening to the folly of subsidized biofuels.

All it took was a mere global "food crisis." Last week chief economist Joseph Glauber of the USDA, which has been among Big Ethanol's best friends in Washington, blamed biofuels for increasing prices on corn and soybeans. Mr. Glauber also predicted that corn prices will continue their historic rise because of demand from "expanding use for ethanol."

Even the environmental left, which pushed ethanol for decades as an alternative to gasoline, is coming clean. Lester Brown, one of the original eco-Apostles, wrote in the Washington Post that "it is impossible to avoid the conclusion that food-to-fuel mandates have failed." We knew for sure the tide had turned when Time magazine's recent cover story, "The Clean Energy Myth," described how turning crops into fuel increases both food prices and atmospheric CO2. No one captures elite green wisdom better than Time's Manhattan editors. Can Vanity Fair be far behind?

All we can say is, welcome aboard. Corn ethanol can now join the scare over silicone breast implants and the pesticide Alar as among the greatest scams of the age. But before we move on to the next green miracle cure, it's worth recounting how much damage this ethanol political machine is doing.

To create just one gallon of fuel, ethanol slurps up 1,700 gallons of water, according to Cornell's David Pimentel, and 51 cents of tax credits. And it still can't compete against oil without a protective 54-cents-per-gallon tariff on imports and a federal mandate that forces it into our gas tanks. The record 30 million acres the U.S. will devote to ethanol production this year will consume almost a third of America's corn crop while yielding fuel amounting to less than 3% of petroleum consumption.

In December the Congressional Research Service warned that even devoting every last ear of American-grown corn to ethanol would not create enough "renewable fuel" to meet federal mandates. According to a 2007 OECD report, fossil-fuel production is up to 10,000 times as efficient as biofuel, measured by energy produced per unit of land.

Now scientists are showing that ethanol will exacerbate greenhouse gas emissions. A February report in the journal Science found that "corn-based ethanol, instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years . . . Biofuels from switchgrass, if grown on U.S. corn lands, increase emissions by 50%." Princeton's Timothy Searchinger and colleagues at Iowa State, of all places, found that markets for biofuel encourage farmers to level forests and convert wilderness into cropland. This is to replace the land diverted from food to fuel.

As usual, Congress is the last to know, but maybe even it is catching on. Credit goes to John McCain, the first presidential candidate in recent memory who has refused to bow before King Ethanol. Onetime ethanol opponent Hillary Clinton announced her support in 2006, as the Iowa caucuses beckoned. In 2006 Barack Obama proposed mandating a staggering 65 billion gallons a year of alternative fuel by 2025, but by this Sunday on NBC's "Meet the Press" he was suggesting that maybe helping "people get something to eat" was a higher priority than biofuels.

Mr. McCain and 24 other Senators are now urging EPA Administrator Stephen Johnson to consider using his broad waiver authority to eliminate looming biofuel mandates. Otherwise, the law will force us to consume roughly four times the current requirement by 2022. In fact, with some concerned state governments submitting helpful petitions, Mr. Johnson could largely knock out the ethanol mandate regime, at least temporarily.

Over the longer term, however, this shouldn't be entrusted to unelected bureaucrats. The best policy would repeal the biofuel mandates and subsidies enacted in the 2005 and 2007 energy bills. We say repeal because there will be intense lobbying to keep the subsidies, or transfer them from projects that have failed to those that have not yet failed.

Like Suzanne Somers in "American Graffiti," the perfect biofuel is always just out of reach, only a few more billion dollars in subsidies away from commercial viability. But sometimes even massive government aid can't turn science projects into products. The industry's hope continues for cellulosic ethanol, but there's no getting around the fact that biofuels require vegetation to make fuel. Even cellulosic ethanol, while more efficient than corn, will require countless acres of fuel if it is ever going to replace oil. Perhaps some future technology will efficiently extract energy from useless corn stalks and fallen trees. But until that day, Congress's ethanol subsidies are merely force-feeding an industry that is doing far more harm than good.

The results include distorted investment decisions, higher carbon emissions, higher food prices for Americans, and an emerging humanitarian crisis in the developing world. The last thing the poor of Africa and the taxpayers of America need is another scheme to conjure gasoline out of corn and tax credits.

Do other people besides me think it obscene that ourp politicans go out into the private sector and turn around to make millions off their having done "public service". Like the Clintons giving speeches for hundreds of thousands a pop, getting their daughter a hedge fund job, John Edwards ties to a hedge fund, the Bushes getting millions as early investors of Global Doublecrossing, presidential libraries being used by the Clintons to funnel themselves more money and on and on.

I think they should all be taxed a 100% windfall profits tax! Isn't that what all this crap is anyway? They are cashing in on their connections made while *serving* the citizens of our country in *public* service?

The hypocrisy is just soooo tiring. From Jonah Goldberg on the hot air windfall profits tax on oil coming out of Washington DC the other place in the US where prostitution is legal.

May 9, 2008 4:00 AM

Take That, Big Oil!The windfall profits tax slap.

By Jonah Goldberg

Imagine this. You’ve built the better mousetrap. (Because lasers and pneumatic tubes are cool, let’s imagine it uses them.) You’ve persevered through years of trial and error in your garage, enduring sleepless nights, the mockery of friends, the eye-rolling of family, and the non-lethal laser wounds to the family cat. But it was all worth it. You take your invention and, with your last few pennies, manage to bring it to market. It’s a smash hit. It starts flying off shelves. You earn back the investment in raw materials and maybe something close to compensation for your time. Now you’re ready for the big payoff. There’s just one thing left to do: make an appointment with the regional Reasonable Profits Board to find out how much of your windfall is reasonable for you to keep.

Picked by Congress nominally for their expertise in analyzing the mousetrap industry but actually for their vampiric lust for entrepreneurial blood, members of the Reasonable Profits Board will determine how much of your already-taxed profits cross the “rational threshold.”

Now that’s the American dream!What this would mean for Mousetrap 2.0 may not be a big concern for members of the board, but odds are you’ll start to feel like you’re working for them.

Replace “Mousetrap” with “oil,” and you have a good idea of how some in Congress want to bring the oil industry to heel. Rep. Paul Kanjorski, D-Pa, is offering his “Consumer Reasonable Energy Price Protection Act,” which would make oil companies supplicants of a Reasonable Profits Board. Senate Democrats, led by Chuck Schumer and Harry Reid, proposed their 25 percent windfall profits tax this week, while Rep. Dennis Kucinich, D-Alpha Centauri, has been calling for a 100 percent windfall profits tax rate for some time. Hillary Clinton is barnstorming the country talking about a windfall profits tax that will not only stick it to the corporate fat cats but will “pay” for a gas tax holiday.

“Windfall,” of course, is just another word for “undeserved,” which is why windfall profits are defined as the profits earned by someone other than you. If we were honest with the people having their profits yanked away, we’d call it the “well-earned and richly deserved profits tax.”

Now hold on a second, cry the unreasonable-profit confiscators. That analogy is bogus. ExxonMobil isn’t some garage-workshop Horatio Alger. ExxonMobil is a cold and impersonal multinational corporation!

To which I say: Exactly!

So why are Democrats keen on treating oil companies like they’re comic-book villains and the windfall profits tax is just a well-deserved enema that will teach Big Oil to pay its fair share?

In 1977, when Jimmy Carter proposed the first windfall profits tax, he said through those enormous teeth, we “will ask private companies to sacrifice just as private citizens do.” But corporations aren’t normal citizens.

If you tell oil companies that they won’t be able to keep their profits past a certain point, you know what they’ll do? They’ll make money right up until that point and then they’ll stop. Unlike the guy building the better mousetrap, oil companies aren’t in it for the glory, they’re in it for the money. No oilman will go home hungry and wake up like Scrooge on Christmas morning, having repented because of a windfall profits tax.

Now, there will be plenty of punishment doled out, more than at a Belgian S&M club during recess at the European Parliament. But the crack of the windfall whip will land in unintended places. “Corporate sacrifice” means sacrificing share value, jobs and, most of all, reinvestment.

So people dependent on pension funds — union workers, government employees and the like — will be asked to sacrifice some of their retirement income. Jobs dependent on oil and gas extraction would be cut. And, as Schumer explains, money that would otherwise be invested in exploration and improved efficiency will instead be diverted to “alternative” energies that politicians (like Schumer) think are better investments.

No wonder Schumer’s so cocky, given the boffo success of Washington’s “investment” in ethanol, which creates more greenhouse gases than oil does, contributes to deforestation, and is fueling the starvation of millions around the globe.

Meanwhile, less investment in exploration and efficiency will cause pump prices to rise (less supply = higher prices) and, as in the 1980s, cause us to rely on more foreign oil.

But, by all means, let’s do it, because Big Oil is bad and someone — or everyone — has to pay for it.

Now hold on a second, cry the unreasonable-profit confiscators. That analogy is bogus. ExxonMobil isn’t some garage-workshop Horatio Alger. ExxonMobil is a cold and impersonal multinational corporation!

To which I say: Exactly!

So why are Democrats keen on treating oil companies like they’re comic-book villains and the windfall profits tax is just a well-deserved enema that will teach Big Oil to pay its fair share?

In 1977, when Jimmy Carter proposed the first windfall profits tax, he said through those enormous teeth, we “will ask private companies to sacrifice just as private citizens do.” But corporations aren’t normal citizens.

If you tell oil companies that they won’t be able to keep their profits past a certain point, you know what they’ll do? They’ll make money right up until that point and then they’ll stop. Unlike the guy building the better mousetrap, oil companies aren’t in it for the glory, they’re in it for the money. No oilman will go home hungry and wake up like Scrooge on Christmas morning, having repented because of a windfall profits tax.

Now, there will be plenty of punishment doled out, more than at a Belgian S&M club during recess at the European Parliament. But the crack of the windfall whip will land in unintended places. “Corporate sacrifice” means sacrificing share value, jobs and, most of all, reinvestment.

So people dependent on pension funds — union workers, government employees and the like — will be asked to sacrifice some of their retirement income. Jobs dependent on oil and gas extraction would be cut. And, as Schumer explains, money that would otherwise be invested in exploration and improved efficiency will instead be diverted to “alternative” energies that politicians (like Schumer) think are better investments.

No wonder Schumer’s so cocky, given the boffo success of Washington’s “investment” in ethanol, which creates more greenhouse gases than oil does, contributes to deforestation, and is fueling the starvation of millions around the globe.

Meanwhile, less investment in exploration and efficiency will cause pump prices to rise (less supply = higher prices) and, as in the 1980s, cause us to rely on more foreign oil.

But, by all means, let’s do it, because Big Oil is bad and someone — or everyone — has to pay for it.

— Jonah Goldberg is the author of Liberal Fascism: The Secret History of the American Left from Mussolini to the Politics of Meaning.

Back in December 2002, one dollar equaled one euro. But that exchange rate didn't last. The dollar was on its way down, a trend that had started more than a year earlier, and has lasted, with occasional oscillations, to this day.

On the day in 2002 that the value of a dollar was exactly the same as the value of a euro, the price of a barrel of oil was, therefore, the same in dollars and euros: about 25. Since that day, it's like the two currencies have traded on two different planets.

Certainly energy prices have risen, regardless of what currency you use. In Europe, the price of oil has risen by 50 euros in the past five-and-a-half years. It now stands at about 75 euros per barrel, three times what it was then. But in the U.S., the price of oil has risen to over $120 per barrel, and is now almost five times what it was then.

The sole reason for this enormous difference is the incredible depreciation of the dollar against the euro. From one for one at the end of 2002, it now costs nearly $1.60 to buy a euro.

The chorus of complaints about the price of gasoline gets louder every day, and is even becoming a campaign controversy both across and within parties. The same old solutions we have heard for years are being proposed – conservation, increased domestic exploration, manipulations of the tax on gasoline. But no one is pointing to what is by far the biggest reason for today's $60 fill-ups. The collapse of the dollar exchange rate, alone, explains at least half of the increase in the pump price of gas over the past five years. If it wasn't for the falling value of the dollar, the price of gasoline wouldn't be an issue.

Maybe the reason nobody talks about it is because they don't think you can do anything about it, or that it's somehow too esoteric to talk about exchange rates. But, economically speaking, what is more fundamental to us than the value of our currency? Why have we allowed the value of a dollar to fall by half?

The conventional wisdom, followed by U.S. administrations for the past 30 years, is that "the market" knows what it's doing in setting these rates, based on "the fundamentals" of the economy. This is, by the way, more or less the same market – the same band of traders, both on and off Wall Street – who, based on some view of the fundamentals, valued Bear Stearns at $100 a share one year ago. As the prevailing view of its fundamentals rapidly shifted, Bear's stock value collapsed, but it hurt only Bear's stockholders. The collapse of the dollar hurts everyone – a lot.

The fact is that the dollar exchange rate is way out of line with the fundamental strength of our economy, and even with such well-known fundamentals as relative inflation rates.

But when it stays out of line for too long, it starts to feed back on the fundamentals themselves. The dollar has been so weak for so long that it's now causing inflation even at a time of recession. It's to blame for the excessive price of gasoline, and now is pushing dangerously into wholesale price inflation, based on the most recent data published by the Labor Department.

Will the market, accommodated by hands-off policy makers, now say that we need more depreciation to offset the inflation that depreciation itself has created?

Oil and the FedMay 23, 2008So the Federal Reserve is signaling that its rate-cutting binge may finally be over, and we can be grateful for that small favor. The consequences of its easy-money bender will roll through the economy for years to come, however, so it's important to draw the right lessons.

All the more so because the Fed's most senior officials continue to insist that recent price increases have almost nothing to do with . . . monetary policy. Imagine that. The latest to wash his hands of responsibility for the value of the currency is Donald Kohn, the Fed's current Vice Chairman and long-time resident intellectual. In a speech in New Orleans this week, Mr. Kohn acknowledged soaring oil and food prices, but he blamed them on global supply and demand for corn, oil and so on.

"As interest rates in the United States fell relative to those abroad, the dollar declined, which could have boosted the prices of commodities commonly priced in dollars by reducing their cost in terms of other currencies," Mr. Kohn explained. "But the prices of commodities have risen substantially in terms of all currencies, not just the dollar. In sum, lower interest rates and the reduced foreign exchange value of the dollar may have played a role in the rise in the prices of oil and other commodities, but it probably has been a small one."

If Mr. Kohn really believes this, we're in more trouble than we thought.

For starters, he is simply wrong about the relative price of commodities and other currencies. The price of oil has risen far more rapidly in dollars than it has in euros since 2002. David King points this out today with a chart that we have run in the past. Had the Fed merely kept the dollar stable against the euro, the price of oil would be closer to $80 than to $131 a barrel.

No one denies that supply and demand play a role in commodity prices, but oil on global markets is denominated in dollars. When the value of the greenback falls, and especially when speculators anticipate that it will fall further, oil sellers demand more dollars for their product. This was the experience of the 1970s, the last time the Fed lost its monetary moorings, and we have been living through a sequel this decade.

As recently as last August, the dollar price of oil was only $70. The current spike in oil and other commodity prices coincides almost exactly with the Fed's decision to turn the monetary spigots wide open as a response to the credit crunch. They have since taken the fed funds rate down to 2% from 5.25%, while commodity prices have soared.

Oil prices have jumped recently on reports of higher global demand, but this too reveals a Fed miscalculation. The central bankers have justified their rapid plunge down the yield curve as necessary to avoid a recession, arguing that a slowing economy would mitigate any inflationary impact. Yet the economy has been far more resilient than either the Fed or its Wall Street beseechers expected, and we may still avoid a single negative quarter for gross domestic product this year.

As for inflation, this week's producer price numbers were alarming. The wholesale inflation figure is up 6.5% in the last year, despite an anomalous April decline in gasoline prices. That decline won't continue with $131 oil. With even the Fed's phony "core inflation" rate well above the 2% fed funds rate, Mr. Kohn and company are running a negative real interest rate policy.

No wonder inflation expectations have been rising. Economist Michael Darda points out that the University of Michigan's year-ahead inflation survey hit 5.2% in May, the highest reading since 1982. Yet some at the Fed continue to insist that inflation expectations are "well-anchored." Anchored on what planet?

The price for this Fed blunder is going to be very high, and we don't mean only at the grocery store or gas station. If inflation doesn't fall, the Fed will have no choice but to start raising rates again, perhaps rapidly and perhaps soon. That could put a damper on any economic recovery, especially if it coincides with the huge tax increase that Barack Obama is promising next year.

Politically, meanwhile, the Fed's commodity spike is proving to be deadly for the Republican Party that occupies the White House. As the nearby poll question shows, rising prices overall and gas prices specifically are by far the public's biggest economic worries. Voters are understandably furious because they can see that their real incomes are falling as prices rise. This is the real source of middle-class economic anxiety – not the housing recession, or jobs, or the liberal obsession with income inequality.

Republicans may be punished this November for forgetting that the Reagan policy mix had two levers – tax cuts and stable money. The Bush Administration got tax policy right. Its tragic error was falling for the siren song of dollar depreciation, and abetting a Federal Reserve that even now seems not to comprehend the damage it has done.

David McNew/Getty ImagesMorning rush-hour traffic moves along a freeway in Riverside, Calif.SummaryThe number of miles driven by Americans dropped 4.3 percent year-on-year in March, according to the U.S. Department of Transportation. The decline — the sharpest ever — represents a behavioral change that is a necessary precursor to a shift in the markets.

AnalysisCar-loving Americans drove 11 billion fewer miles in March than they did a year earlier, the U.S. Department of Transportation reported May 23. The 4.3 percent decline is the first year-on-year decline since the 1979 oil shock, and the sharpest decline ever.

While Americans typically think of themselves as pressed for funds, in fact they have the most disposable income per capita of any of the major developed states. Adjusted for inflation, the average American’s disposable income has increased by more than $10,000 since the 1979 oil shock as estimated by the Bureau for Economic Analysis. There are more than 300 million Americans, and the sheer size of their collective purchasing power is simply mammoth.

Thus, Americans can rather painlessly absorb nearly any price increase for basic goods. But apparently there is a level at which they begin to adjust their behavior. Oil prices are now above $130 a barrel, twice what they were a year ago, and gasoline prices averaged $3.79 this week. Whether the decline in miles driven is happening because of high oil prices or slower economic growth — or more likely a combination of the two — is irrelevant.

The point is that it is happening and that will have results. The current economic situation is changing driving and spending habits on a long-term basis. For example, wretched sales of trucks and sport utility vehicles have a counterpoint in phenomenal sales of hybrid vehicles. These shifts to a more energy-efficient lifestyle are factors that will shape oil demand for a decade, and permanently reduce the demand of a culture that has traditionally been the oil producers’ best customer.

This is not to say that the May 23 statistical release will become known as the turning point in the market, but never forget that the United States uses more oil in absolute and per capita terms than any other country in the world. Without a shift in American behavior, it is difficult to see how the markets could ever undergo a fundamental drop. With that shift, it is difficult to see how — given time — they cannot.

I found this video pretty disturbing. My dad sent it to me and told me that once he started watching, he didn't intend to watch it all the way through however couldn't stop watching and I had the same experience. It's a long video however Lindsey Williams (the guy giving the lecture) has VERY specific knowledge and doesn't hesitate to name the names of those who are controlling the world in his opinion. He gave this lecture in October 2007 and said that oil prices would be $4-$5 per gallon in the very near future (we're there now) and said it wouldn't be long before it is $6-$7.

A few highlights off the top of my head are.....

1. The oil companies do make profits however it's not near as much as the middle men that we never hear about being the IMF and the World Bank.2. One of the if not the largest oil fields in the world is in Gull Island, Alaska and would supposedly last us 200 years however we cannot dig there for many of the following reasons.3. Oil is the world currency and controls almost everything we do.4. Back in the 1960s or early 1970s, then Secretary of State Henry Kissinger went to the middle eastern countries to negotiate a deal with them to sell us their oil and in return, they must denominate all oil sales on US Dollar currency. Another part of the deal was that they had to take a portion of the oil revenues and buy our national debt. The Saudi's agreed however Iran and Iraq did not. 5. Iraq supposedly had plans to start denominating oil in foreign currency and had to be taken care of. He named the name of a guy who was sent into Iraq to tell their leaders that if they invaded Kwuait that we would not intervene. This was supposedly a set up. When we didn't finish the job the first time around, we had to go back.6. Iran is now a major threat to us because they are already denominating their oil in Euros and Yen. China has already negotiated millions upon millions of barrels of oil contracts in Yen currency.7. Iran supposedly has a plan to flood the world with cheap oil which could have a devastating effect on our economy and the value of our dollar. You can google Petrodollar warfare and read a lot about it.

Very interesting in my opinion and a worthwhile video to watch. This guy served as a Chaplain on the Alaska pipeline and said he worked side by side and counseled with many of those who are in control of the world in many ways. He seems very credible. I normally don't post information like this however thought it was worthwhile.

How would the IMF and World Bank act as middle men in the global oil trade?

"2. One of the if not the largest oil fields in the world is in Gull Island, Alaska and would supposedly last us 200 years however we cannot dig there for many of the following reasons."** What reasons?**

"4. Back in the 1960s or early 1970s, then Secretary of State Henry Kissinger went to the middle eastern countries to negotiate a deal with them to sell us their oil and in return, they must denominate all oil sales on US Dollar currency. Another part of the deal was that they had to take a portion of the oil revenues and buy our national debt. The Saudi's agreed however Iran and Iraq did not."

**Kissinger was Sec. of State from from 1969-1975. At that time, the Shah was very much a client of ours until the 1979 Islamic revolution. Iraq was ruled by the Baath party, but Saddam didn't rise to power until 1979. To the best of my knowledge, the Saudis have been selling oil for the US dollar since at least the end of WWII. Those historical timelines don't seem to mesh with the conspiracy claims asserted.**

"5. Iraq supposedly had plans to start denominating oil in foreign currency and had to be taken care of. He named the name of a guy who was sent into Iraq to tell their leaders that if they invaded Kwuait that we would not intervene. This was supposedly a set up. When we didn't finish the job the first time around, we had to go back."

** If this was indeed a set up, then why leave Saddam in power? That would be pretty stupid to set up a war and then not bother to get the payoff from it.**

6. Iran is now a major threat to us because they are already denominating their oil in Euros and Yen. China has already negotiated millions upon millions of barrels of oil contracts in Yen currency.

**China's currency is the Yuan or Renminbi, although i'm sure the PRC has Yen holdings, I doubt they would trade oil for Japan's Yen, given the Chinese-Japanese hostility today. Iran supplies about 5% of the world's oil supply, so they aren't exactly a major player. Oil is fungible, so not matter whom you buy from, you pay the market price.**

7. Iran supposedly has a plan to flood the world with cheap oil which could have a devastating effect on our economy and the value of our dollar. You can google Petrodollar warfare and read a lot about it.

**Cheap oil would help our economy, not hurt it. Iran has flooded the world with high grade counterfeit dollars, causing us to change the dollar format in response, that DID hurt us.**

GM, and all the other brain trusts that rule this portion of the forum.........I would really appreciate your comments on what the video/man says.I just sat thru the entire video and found it not onley intresting but quite believeable.

I think I saw that gas in Saudi Arabia is 50 cents a gal. Why are we paying so much for foriegn oil when we have resources of our own?

There again take off your tin foil hat for a moment and give us your take/s on the video please......Crafty? TG

Senate Democratic leader Harry Reid, the Mr. Magoo of American politics, stumbled onto the truth last week. He discovered the law of supply and demand. "We want to put [more oil] on the market to increase supply and lower prices," Reid said. "With oil and gas prices continuing to break record highs every day, much more needs to be done."

Indeed it does. But Reid won't allow it. His understanding of economics only extends to matters in which he might embarrass President Bush. The oil he wants on the market is the oil the administration is buying for the Strategic Petroleum Reserve (SPR), now nearly full. Reid got his way. The administration now plans to stop oil shipments to the SPR next month.

Beyond that, Reid and his party are committed to suppressing increased oil production in this country, as they wait for that magical day when fossil fuels are no longer needed to supply the nation's energy needs.

That day may come in 50, 60, 70 years--or never. In the meantime, America needs oil, and the good news is we're awash in the stuff. If the oil reserves miles off the Atlantic and Pacific coasts, in the eastern Gulf of Mexico, and in federally owned lands in the West and Alaska were tapped, our dependence on foreign oil could begin to be reversed. In 10 years, half of America's oil could be produced at home (up from 40 percent), with more coming from increased exports from Canada.

We wouldn't achieve energy independence. That's a pipedream, and anyway it isn't necessary in a global economy with multiple producers. But America would be taking a big step toward energy security and reducing the flow of dollars to unstable countries--notably Iran and Venezuela--that do not wish us well.

So more oil production would strengthen America's national security. By increasing the supply of oil, it would reduce the price, or at least ease the pressure on price from rising world demand. And the mere commitment to boosting production would have a soothing effect on a world market easily spooked by threats to supply.

But there's a problem: Eighty-five percent of the untapped domestic sources of oil have been put off-limits. There's a federally mandated moratorium on drilling offshore, and huge roadblocks to exploiting the oil on the vast federal lands have been erected.

"What keeps these areas closed are exaggerated environmental fears, strong prejudice against oil companies and sheer stupidity," wrote Robert Samuelson recently. Lifting the moratorium requires action by Congress and the White House. So don't hold your breath. The Democratic Congress is a wholly owned subsidiary of the environmental lobby, which regards oil exploration, much less drilling, as a sin against nature.

Advances in technology, however, make serious offshore oil spills a thing of the past. One hundred eight platforms were destroyed and hundreds more damaged in the Gulf of Mexico by hurricanes Rita and Katrina without a single major spill. Californians may remember the damaging spill off Santa Barbara, but that was 40 years ago and was the result of ancient technology.

New technology also means the coastlines would not be marred by unsightly oil platforms. Drilling now goes miles deeper to capture oil once out of reach--and much farther offshore. The moratorium doesn't take this into account. It blindly bars drilling for 200 miles off the Atlantic and Pacific shores.

The United States is virtually alone in treating offshore production as taboo. Great Britain and Norway drill off their coasts without polluting the North Sea. Brazil has achieved energy independence not only by ethanol use but also by expanded offshore oil production. China is now drilling at Cuba's behest in waters halfway to the coast of Florida.

There's another compelling reason to boost domestic production. Oil from current sites is gradually being depleted. Unless new sources come on line in the next few years, America will produce less oil at home and become even more dependent on oil from abroad, the Middle East in particular.

Reid and Democrats, OPEC's best friends, aren't noticeably concerned. Their next step is to remove tax incentives to explore and drill for more oil. And Senator Hillary Clinton is eager to impose a new windfall profits tax on oil revenues. These measures have no purpose other than to punish oil companies. They are counterproductive.

When you remove incentives to produce something and when you slap higher taxes on its producers, one thing happens: You get less of the product. In the case of oil, we need more of it and will for the foreseeable future. The oil is there for the getting. But it won't come out of the ground on its own.

The President of the United States has prostrated himself for the second time in five months before the King of Saudi Arabia, pleading for more oil. Despite Mr. Bush’s inducements – an array of advanced, offensive arms; the promise of nuclear technology with which the Saudis can expect (like the North Koreans, Iranians, Pakistanis, etc.) to acquire the ultimate weapons; and U.S. help securing Saudi Arabia’s borders (something the President has declined to do at home) – the American plea was spurned. The contempt felt by the House of Saud was captured in its oil minister’s quip, “If you want more oil, buy it.”

The Senate rejected, by a vote of 56-42, an initiative offered by Republicans that called for opening the Arctic National Wildlife Refuge (ANWR) in Alaska and some offshore waters now closed to exploration and exploitation of their substantial oil reserves.

In addition, that chamber’s appropriations committee refused by a similar party-line vote to lift its moratorium on oil-shale production in Colorado. It seems that, if we want more oil, we will have to buy it at ever increasing prices from the Saudis and others even more unfriendly to this country’s national security and economic interests – like Venzuela’s Hugo Chavez or Russia’s Vladimir Putin, perhaps even Iran’s Mahmud Ahmadinejad.

One thing the Senate and House did agree upon, by overwhelmingly bipartisan majorities, was suspending purchases of oil to fill the remaining three percent of the capacity of the Strategic Petroleum Reserves. This action will have negligible (if any) impact on energy prices. But it will ensure that less oil will be available to us than would otherwise have been the case in the event, for example, the next terrorist attack on the Saudi oil infrastructure succeeds where others have failed and seriously disrupts world supplies.

Then there is the newly formed coalition, ostensibly spearheaded by the Grocery Manufacturers’ Association, that has launched a multi-million dollar lobbying effort aimed at discouraging the development of one alternative to oil: domestically produced or imported ethanol. Wrongly asserting that producing this transportation fuel from corn is largely responsible for rising food prices and the attendant global shortages, this instant grassroots (read, “astroturf”) coalition appears to want America to remain essentially dependent on oil. Wonder where the money for this campaign is coming from?

A. These actions – taken against the backdrop of soaring energy prices and the attendant hemorrhage of U.S. petrodollars to, among others, people who wish us ill – represent the sort of behavior in which only a nation utterly unserious about energy security could indulge.

The truth of the matter is that, no matter what we do, we are going to need oil for the foreseeable future. As a result, we should do our utmost to find it and exploit it in places that are either under our control (for example, near where the Cubans and Chinese are getting it off the coast of Florida) or at least friendly to us (notably, Canada, Mexico and Brazil).

It is equally axiomatic that, no matter what we do, we are almost certainly going to have less oil than we need, certainly at prices we can afford. The question is: Are we going to do something to meet the shortfall? Or are we simply going to allow the economy and security of the United States to bleed-out at the hands of the Saudi-led OPEC cartel?

The Set America Free Coalition – an initiative launched several years ago by unlikely array of national security-, environmental- and energy-minded people and organizations from across the political spectrum – is advancing practical, near-term alternatives to that unappetizing and unacceptable prospect.

At the moment, the Coalition is mounting its own campaign aimed at achieving in the immediate future, a simple yet far-reaching goal: Ensuring that each of the 17 million new cars added to America’s highways each year is capable of being powered by ethanol (from whatever source), methanol (ditto) or gasoline (or some combination thereof).

There are already some 6 million of these Flexible Fuel Vehicles (FFVs) on our roads today. Most of these are American-made (name another technology in which Detroit has a competitive advantage?) It costs less than $100 per car to equip new cars with this feature.

Ask yourself, and your elected representatives and would-be Presidents: As each of these cars will last, on average, roughly 17 years, do we want any more of them to be built the old way – namely able to use only gasoline? Can we responsibly continue for another generation to lock our transportation sector (the principal, and most profligate, consumer of imported oil) into dependence on oil substantially imported from unfriendly places?

Dr. Robert Zubrin – a leader of the Set America Free Coalition and author of the terrific new book, Energy Victory: Winning the War on Terror by Breaking Free of Oil – observes that at today’s oil prices, we are allowing the Saudis and their friends to impose the equivalent of a 40 percent income tax at a cost of approximately $3300 on every man woman and child in this country. We literally cannot afford to allow such lunacy to continue.

Sooner or later, Congress will adopt an Open Fuel Standard requiring every new car sold in America to be an FFV. The effect will be, in short order, to create an immense and highly competitive market for alternative, “Freedom Fuels” that we can make here or buy from friends. That, in turn, will set America free by beginning to end its cars’ present addiction to oil. Why wait any longer?

Woof, I'am really hoping to get some personal comments from the video posted by Doug and does not get buried beneath a mega list of articles and writings.... I rarely come down to this forum becuase its impossible for me to keep up with all the articles to read.

Crafty, and all others I know you guys are well read.....and would just like to hear what you have to say?My tin foil comments were directed back at GM's quote:

The guy makes some sound points. Yes there is an excrement load of undrilled oil out there in various forms. Some of it is not being drilled because its really dirty, or would require refineries with capabilities as yet unbuilt. Why hasn't the US built a refinery since the mid 1970s? Good question , , , and its answer is not the rapacious oil companies, who would love to have lots of refineries, but the liberals who accuse the oil companies of being the problem.

Some of it is not being used because the planet cannot support the filth that would ensue from such dirty supplies.

Some of it requires huge investment in infrastructure (e.g. how the hell to get the Canadian tar sands to market?) and burn it cleanly?

Some of it is there, but not likely to be economically successful for a long time.

Some investment is forclosed because of security risks. Woud you drill in Kazakstan if it were your money? Some of it is blocked off due to foreign domestic politics e.g. Mexico.

Some of the guys numbers SOUND authoritative, but I'm not aware of the Russians having huge finds at 40,000' (40,000' ) beneath the Artic Sea. I know they have been manuvering to claim most of the Artic sea bed with some tiny scientific drilling, (there's a thread on this forum devoted to this BTW) but to read this as something being held back from market is , , , silly.

Ultimately, just because it exists, does not mean its available in a politically secure, economically profitable, and environmentally acceptable manner.

Here's something from Stratfor I think a better use of our time:

May 27, 2008By George Friedman

Oil prices have risen dramatically over the past year. When they passed $100 a barrel, they hit new heights, expressed in dollars adjusted for inflation. As they passed $120 a barrel, they clearly began to have global impact. Recently, we have seen startling rises in the price of food, particularly grains. Apart from higher prices, there have been disruptions in the availability of food as governments limit food exports and as hoarding increases in anticipation of even higher prices.

Oil and food differ from other commodities in that they are indispensable for the functioning of society. Food obviously is the more immediately essential. Food shortages can trigger social and political instability with startling swiftness. It does not take long to starve to death. Oil has a less-immediate — but perhaps broader — impact. Everything, including growing and marketing food, depends on energy; and oil is the world’s primary source of energy, particularly in transportation. Oil and grains — where the shortages hit hardest — are not merely strategic commodities. They are geopolitical commodities. All nations require them, and a shift in the price or availability of either triggers shifts in relationships within and among nations.

It is not altogether clear to us why oil and grains have behaved as they have. The question for us is what impact this generalized rise in commodity prices — particularly energy and food — will have on the international system. We understand that it is possible that the price of both will plunge. There is certainly a speculative element in both. Nevertheless, based on the realities of supply conditions, we do not expect the price of either to fall to levels that existed in 2003. We will proceed in this analysis on the assumption that these prices will fluctuate, but that they will remain dramatically higher than prices were from the 1980s to the mid-2000s.

If that assumption is true and we continue to see elevated commodity prices, perhaps rising substantially higher than they are now, then it seems to us that we have entered a new geopolitical era. Since the end of World War II, we have lived in three geopolitical regimes, broadly understood:

The Cold War between the United States and the Soviet Union, in which the focus was on the military balance between those two countries, particularly on the nuclear balance. During this period, all countries, in some way or another, defined their behavior in terms of the U.S.-Soviet competition. The period from the fall of the Berlin Wall until 9/11, when the primary focus of the world was on economic development. This was the period in which former communist countries redefined themselves, East and Southeast Asian economies surged and collapsed, and China grew dramatically. It was a period in which politico-military power was secondary and economic power primary. The period from 9/11 until today that has been defined in terms of the increasing complexity of the U.S.-jihadist war — a reality that supplanted the second phase and redefined the international system dramatically. With the U.S.-jihadist war in either a stalemate or a long-term evolution, its impact on the international system is diminishing. First, it has lost its dynamism. The conflict is no longer drawing other countries into it. Second, it is becoming an endemic reality rather than an urgent crisis. The international system has accommodated itself to the conflict, and its claims on that system are lessening.

The surge in commodity prices — particularly oil — has superseded the U.S.-jihadist war, much as the war superseded the period in which economic issues dominated the global system. This does not mean that the U.S.-jihadist war will not continue to rage, any more than 9/11 abolished economic issues. Rather, it means that a new dynamic has inserted itself into the international system and is in the process of transforming it.

It is a cliche that money and power are linked. It is nevertheless true. Economic power creates political and military power, just as political and military power can create economic power. The rise in the price of oil is triggering shifts in economic power that are in turn creating changes in the international order. This was not apparent until now because of three reasons. First, oil prices had not risen to the level where they had geopolitical impact. The system was ignoring higher prices. Second, they had not been joined in crisis condition by grain prices. Third, the permanence of higher prices had not been clear. When $70-a-barrel oil seemed impermanent, and likely to fall below $50, oil was viewed very differently than it was at $130, where a decline to $100 would be dramatic and a fall to $70 beyond the calculation of most. As oil passed $120 a barrel, the international system, in our view, started to reshape itself in what will be a long-term process.

Obviously, the winners in this game are those who export oil, and the losers are those who import it. The victory is not only economic but political as well. The ability to control where exports go and where they don’t go transforms into political power. The ability to export in a seller’s market not only increases wealth but also increases the ability to coerce, if that is desired.

The game is somewhat more complex than this. The real winners are countries that can export and generate cash in excess of what they need domestically. So countries such as Venezuela, Indonesia and Nigeria might benefit from higher prices, but they absorb all the wealth that is transferred to them. Countries such as Saudi Arabia do not need to use so much of their wealth for domestic needs. They control huge and increasing pools of cash that they can use for everything from achieving domestic political stability to influencing regional governments and the global economic system. Indeed, the entire Arabian Peninsula is in this position.

The big losers are countries that not only have to import oil but also are heavily industrialized relative to their economy. Countries in which service makes up a larger sector than manufacturing obviously use less oil for critical economic functions than do countries that are heavily manufacturing-oriented. Certainly, consumers in countries such as the United States are hurt by rising prices. And these countries’ economies might slow. But higher oil prices simply do not have the same impact that they do on countries that both are primarily manufacturing-oriented and have a consumer base driving cars.

East Asia has been most affected by the combination of sustained high oil prices and disruptions in the food supply. Japan, which imports all of its oil and remains heavily industrialized (along with South Korea), is obviously affected. But the most immediately affected is China, where shortages of diesel fuel have been reported. China’s miracle — rapid industrialization — has now met its Achilles’ heel: high energy prices.

China is facing higher energy prices at a time when the U.S. economy is weak and the ability to raise prices is limited. As oil prices increase costs, the Chinese continue to export and, with some exceptions, are holding prices. The reason is simple. The Chinese are aware that slowing exports could cause some businesses to fail. That would lead to unemployment, which in turn will lead to instability. The Chinese have their hands full between natural disasters, Tibet, terrorism and the Olympics. They do not need a wave of business failures.

Therefore, they are continuing to cap the domestic price of gasoline. This has caused tension between the government and Chinese oil companies, which have refused to distribute at capped prices. Behind this power struggle is this reality: The Chinese government can afford to subsidize oil prices to maintain social stability, but given the need to export, they are effectively squeezing profits out of exports. Between subsidies and no-profit exports, China’s reserves could shrink with remarkable speed, leaving their financial system — already overloaded with nonperforming loans — vulnerable. If they take the cap off, they face potential domestic unrest.

The Chinese dilemma is present throughout Asia. But just as Asia is the big loser because of long-term high oil prices coupled with food disruptions, Russia is the big winner. Russia is an exporter of natural gas and oil. It also could be a massive exporter of grains if prices were attractive enough and if it had the infrastructure (crop failures in Russia are a thing of the past). Russia has been very careful, under Vladimir Putin, not to assume that energy prices will remain high and has taken advantage of high prices to accumulate substantial foreign currency reserves. That puts them in a doubly-strong position. Economically, they are becoming major players in global acquisitions. Politically, countries that have become dependent on Russian energy exports — and this includes a good part of Europe — are vulnerable, precisely because the Russians are in a surplus-cash position. They could tweak energy availability, hurting the Europeans badly, if they chose. They will not need to. The Europeans, aware of what could happen, will tread lightly in order to ensure that it doesn’t happen.

As we have already said, the biggest winners are the countries of the Arabian Peninsula. Although somewhat strained, these countries never really suffered during the period of low oil prices. They have now more than rebalanced their financial system and are making the most of it. This is a time when they absolutely do not want anything disrupting the flow of oil from their region. Closing the Strait of Hormuz, for example, would be disastrous to them. We therefore see the Saudis, in particular, taking steps to stabilize the region. This includes supporting Israeli-Syrian peace talks, using influence with Sunnis in Iraq to confront al Qaeda, making certain that Shiites in Saudi Arabia profit from the boom. (Other Gulf countries are doing the same with their Shiites. This is designed to remove one of Iran’s levers in the region: a rising of Shiites in the Arabian Peninsula.) In addition, the Saudis are using their economic power to re-establish the relationship they had with the United States before 9/11. With the financial institutions in the United States in disarray, the Arabian Peninsula can be very helpful.

China is in an increasingly insular and defensive position. The tension is palpable, particularly in Central Asia, which Russia has traditionally dominated and where China is becoming increasingly active in making energy investments. The Russians are becoming more assertive, using their economic position to improve their geopolitical position in the region. The Saudis are using their money to try to stabilize the region. With oil above $120 a barrel, the last thing they need is a war disrupting their ability to sell. They do not want to see the Iranians mining the Strait of Hormuz or the Americans trying to blockade Iran.

The Iranians themselves are facing problems. Despite being the world’s fifth-largest oil exporter, Iran also is the world’s second-largest gasoline importer, taking in roughly 40 percent of its annual demand. Because of the type of oil they have, and because they have neglected their oil industry over the last 30 years, their ability to participate in the bonanza is severely limited. It is obvious that there is now internal political tension between the president and the religious leadership over the status of the economy. Put differently, Iranians are asking how they got into this situation.

Suddenly, the regional dynamics have changed. The Saudi royal family is secure against any threats. They can buy peace on the Peninsula. The high price of oil makes even Iraqis think that it might be time to pump more oil rather than fight. Certainly the Iranians, Saudis and Kuwaitis are thinking of ways of getting into the action, and all have the means and geography to benefit from an Iraqi oil renaissance. The war in Iraq did not begin over oil — a point we have made many times — but it might well be brought under control because of oil.

For the United States, the situation is largely a push. The United States is an oil importer, but its relative vulnerability to high energy prices is nothing like it was in 1973, during the Arab oil embargo. De-industrialization has clearly had its upside. At the same time, the United States is a food exporter, along with Canada, Australia, Argentina and others. Higher grain prices help the United States. The shifts will not change the status of the United States, but they might create a new dynamic in the Gulf region that could change the framework of the Iraqi war.

This is far from an exhaustive examination of the global shifts caused by rising oil and grain prices. Our point is this: High oil prices can increase as well as decrease stability. In Iraq — but not in Afghanistan — the war has already been regionally overshadowed by high oil prices. Oil-exporting countries are in a moneymaking mode, and even the Iranians are trying to figure out how to get into the action; it’s hard to see how they can without the participation of the Western oil majors — and this requires burying the hatchet with the United States. Groups such as al Qaeda and Hezbollah are decidedly secondary to these considerations.

We are very early in this process, and these are just our opening thoughts. But in our view, a wire has been tripped, and the world is refocusing on high commodity prices. As always in geopolitics, issues from the last generation linger, but they are no longer the focus. Last week there was talk of Strategic Arms Reduction Treaty (START) talks between the United States and Russia — a fossil from the Cold War. These things never go away. But history moves on. It seems to us that history is moving.

Fair enough.... I did read where Russia has drilled that deep, but not for oil but to study the earth, reportedly for "oil research reasons".

I guess we have to let this thing play out. Obviously we will never see pre 2000 prices again.....I do not believe that demand is driving the price......at least not at the rate we are seeing.I'am more inclined to beleive speculators are driving price......I also think that it will be sometime before we recover and balance out....... TG

This is a different Doug commenting. Thank you Doug S. for posting the video. I particularly appreciate the serious work that went into making the summary. Due to internet and time constraints, I haven't seen the video but offer my opinions on the points in the summary. This is NOT intended as shoot the messenger, just comment on substantive points made.

Again, just my opinion but I don't like the argument style of posting pieces of truth to build trust and then making conclusions that don't necessarily or logically follow.

1) "The oil companies do make profits however it's not near as much as the middle men that we never hear about being the IMF and the World Bank."

- Oil companies make about 8 cents. State and feds make about 65 cents in some cases off of a gallon of gas. Look there - at government waste and largess - if you need a side show villain. I don't know any reason that IMF or World Bank would get a cut on every gallon of our gas. They are a separate side show and probably have plenty of waste and corruption to find when time permits. They are not the reason prices are high. Prices are high because demand grew and supply didn't and it is exaggerated by the inelastic nature of gasoline demand within the price ranges we have seen. I thought the American consumer could easily outbid the foreign consumer of China or India for example until I read here I think that those countries subsidize the cost to the consumer to soften the price rise. Like third party pay in health care, add that distortion to the runaway oil futures market.

2) "One of the if not the largest oil fields in the world is in Gull Island, Alaska and would supposedly last us 200 years"

- I don't know the details of each oil field. Like Crafty posted since, there could be issues of quality or difficulty in some, but we certainly have plenty of known sources that are blocked by politics. In other words, oil prices are high because of the policies we choose.

3) "Oil is the world currency and controls almost everything we do."

- Oil is a big, big deal. There is no need to overstate it's importance. The amount of new oil that we need to stabilize the markets is not that large. If prices go up forever, the alternatives will just emerge that much sooner causing oil's own obsolescence. We can't instantly shut off our usage and producers like Saudi can't shut off their supply. Producing and selling oil to them is their cash register and they are as dependent as us and more so.

4) "Back in the 1960s or early 1970s, then Secretary of State Henry Kissinger went to the middle eastern countries to negotiate a deal with them to sell us their oil and in return, they must denominate all oil sales on US Dollar currency. Another part of the deal was that they had to take a portion of the oil revenues and buy our national debt. The Saudi's agreed however Iran and Iraq did not."

- I'll assume it's largely a true story but meaningless to me. A handshake agreement with Nixon's Secretary of State is not a treaty approved by the U.S. senate or binding on America or future administrations. It certainly isn't binding on the countries of the middle east. Iraq of Saddam and Iran run by mullahs are known enemies and are not expected to act in our best interest or keep commitments, especially ones they never made.

5) "Iraq supposedly had plans to start denominating oil in foreign currency and had to be taken care of. He named the name of a guy who was sent into Iraq to tell their leaders that if they invaded Kwuait that we would not intervene. This was supposedly a set up. When we didn't finish the job the first time around, we had to go back."

- The name was a gal named April GIlepie, Ambassador to Iraq. This is where the tin hat story begins IMO. A Bush-I official said that the slant drilling allegation of Iraq against Kuwait was a matter for those parties, not for the U.S. Political opponents and conspiracists have long run with this to pretend it was the green light for Saddam to take Kuwait by force and conquest for annexation without consequence. I find that preposterous. If they did read some clumsy words from a minor political appointee that way I guess they were badly mistaken and Saddam in hell probably realizes his miscalculation right now. The sucker punch or inducement argument also fails because we now know the Americans and the coalition still had no intention of toppling Saddam in our reaction, although they could have.

6) "Iran is now a major threat to us because they are already denominating their oil in Euros and Yen. China has already negotiated millions upon millions of barrels of oil contracts in Yen currency."

- Again, Iran as it is run today is an enemy of the United States. Of course they will avoid our currency or helping us in any way at every turn. They are a threat because of their own choices and policies, supporting Hizbullah, supporting destruction of Israel, supporting the killing of Americans in Iraq, supporting the killing of civilians to escalate the violence in Iraq and continue the conflict, and just general support for global jihad and literal declarations of death to America.

7) "Iran supposedly has a plan to flood the world with cheap oil which could have a devastating effect on our economy and the value of our dollar."

- Bring it on IMO. Why would we be hurt by cheap oil? Frankly Iran is cash strapped and unable to 'flood' any market with oil or any other product.

Ok, I watched the first 45-50 minutes of this drivel. At least it confirmed that my tin foil detector is calibrated. Unless Mr. Williams was saving up all the hard evidence for the last 20 minutes, there is nothing of merit to his claims. Typical conspiracy lunacy, small bits of facts strung together with giant leaps of logic and misinformation.

Ok, I watched the first 45-50 minutes of this drivel. At least it confirmed that my tin foil detector is calibrated.

What held you 45-50 minutes? Crafty onley made it 4:30.....(light weight )

I think the thing that gets me the most is that we (the u.s.) has the oil, to make us independent from foriegn oil (or much less dependent).....but we don't get it or go after it.....whats wrong with that picture?I just have a hard time buying the "Oh its the liberal lefty's that won't lets us get it" babble......(nonsense)

When did that ever stop a good oil man (speaking of Bush/family and him doing what he wants) You have to admit there is something funny about, allowing our enemies to hold our ass to the gas lamp.....why would we want to give them that kind of power.Lets be honest......oil rules the world. TG

Look up the environmental laws passed at the federal and state level since the 1970's. We haven't built an oil refinery since the 70's either. Thank the NIMBYs/environmentalists for this. No dark conspiracy, no cabal of oilmen plotting global hegemony with the help of "bankers" (codeword for the JooooOOOOoooos). After all, no conspiracy theory is complete without some semetic types pulling strings from the shadows, so Henry Kissinger makes dark deals with Iran and Iraq, despite both being under different governments after Henry leaves State.

This clown doesn't even know how to pronounce Bill Maher's name correctly. I'm sure the rest of his research is just as dilligent.

So, if one has no grasp of history, economics or geopolitics, his ideas make sense.

GM, I would be one to fall into the category of "no grasp of history ,economics, or geopolitics"...esp when it comes to oil and its production in this country.I'am not insinuating that this guy is on to something........Its really hard for me though, to deal with the idea that we have allowed ourselves into the situation that has now evolved.......and why did it take so long to happen?Talk about feeling "Bled out" ...... TG

We got into this problem like we generally get into every crisis. The politicians care about getting re-elected, meaning they try to push legislation that puts money (pork) into the voters' pockets while not pissing the voters off. The high level gov't bureaucrats are busy trying to create bigger gov't entities so the get to the next supergrade of pay. The general public is busy watching "American Idol" or the next distraction of the moment, so what starts out as small problems grow until the public is jarred out of it's slumber by the neglected issue when it impacts them directly. Then the sheep stampede towards "Somebody do SOMETHING NOW!".

Then it's back to sleep. Until next time....

Illegal immigration is a good example of the above, or the rise of Hitler if you want to look back farther.

"Its really hard for me though, to deal with the idea that we have allowed ourselves into the situation that has now evolved.......and why did it take so long to happen?"

Well, we have-- and a goodly portion of the reason is that for a variety of reasons, some good, some understandable, and a lot of them really stupid-- for decades the liberal left has sedulously worked to prevent the development of additional supplies.

The reason it has taken so long is that this is an amazing country that has a relatively free market (though a lot less than it used to be).

Glad to see you expanding your reading to this forum. I think if you go back into the threads that address issues of interest to you, you will find them to be wonderful tools of self-education and research. It is why this forum is organized this way.===============

ACTION ALERT: Fight Back Against High Gas Prices And the Politicians Who Will Make them Higher StillBy Newt Gingrich

There must be something about springtime in Washington that makes Senators forget where they came from.

Next week, the Senate is set to begin debate on a bill that will raise the price of gasoline, diesel fuel, heating oil and aviation fuel.(view this Heritage Foundation state-by-state breakdown to find out how much Warner Lieberman will cost you). It's the Warner-Lieberman global warming bill, and its supporters are as misguided and out-of-touch with the American people as the supporters of last spring's immigration amnesty bill - and we all remember how that turned out.

Our Goal: 100,000 Voices the Senate Can't Ignore There are two things you can do now to fight back.

First, call or email your Senator and tell him or her to vote "no" on Warner-Lieberman - "no" on raising the cost of driving to work, heating your home, and feeding your family.

We, therefore, the undersigned citizens of the United States, petition the U.S. Congress to act immediately to lower gasoline prices by authorizing the exploration of proven energy reserves to reduce our dependence on foreign energy sources from unstable countries.

In just a few short days, over 45,000 Americans have signed the pledge.

And with your help, as the Senate begins to debate Warner-Lieberman, American Solutions will present the names of 100,000 of their constituents who will hold them accountable if they fail to allow America the freedom to use its own energy resources instead of relying on foreign dictators.

Americans truly have a choice - a choice between the Pay More, Send More Money to Foreign Dictators and Cripple America Left and the Produce More, Enjoy More, Pay Less, Stengthen American Center-Right Majority.

No doubt speculation is a part of this, but ultimately speculation is a zero sum game that punishes most of its players.

============

A bold and long-overdue move aimed at curbing the spread of the latest economic cancer — the seemingly unstoppable rise in oil and gas prices — may soon be on the way.

That's the sunny forecast from one of the country's leading heavyweight investment strategists, Bill Knapp, who tells me relief could be coming via a sharp increase in margin requirements for the purchases of oil futures, an event he sees occurring in the next two to three months.

Speculative trading fueled by low margin requirements, where buyers can acquire a barrel of oil (now around $132.40) for about $6 or $7, or at a leveraged ratio of roughly 20 to 1, has been the major driver of the skyrocketing price.

Congress has been pushing the Commodity Futures Trading Commission, which regulates commodity futures and options markets in America, to hike margin requirements on crude purchases in an effort to temper the rise in oil prices and give consumers some relief at the gas pump.

Given the impending presidential election and the national uproar over swelling gas prices, Mr. Knapp, who helps guide strategy at a $37 billion money management subsidiary of New York Life, MainStay Investments, gives Congress a 50-50 chance of bringing about higher margin requirements and increasing the leveraged ratio to possibly 4:1.

Oppenheimer & Co.'s veteran energy analyst, Fadel Gheit, sums it up: "With the stock market acting so erratically, oil is the only game in town; it's the last bastion for traders. Government action to boost margin requirements is badly needed and long overdue."

A CFTC spokesman declined to comment.

With the price of gas likely within days of exceeding a national average of $4 a gallon, and growing speculation that prices of $5-plus will begin popping up frequently during the upcoming summer driving season, government action to halt the rise through higher margin requirements on oil purchases is also viewed as probable by a number of other pros. Each $1 a barrel increase or decrease in the price of oil eventually adds up to 2.5 cents more or less at the gas pump.

Mr. Knapp believes that an increase in margin requirements could trigger an avalanche of oil sales by traders that could knock the price down to between $60 and $80 a barrel. "Considering all the speculation, you could see a wave of profit taking by speculators that could drive down oil prices pretty quickly," he says.

He also says the price of oil could come under pressure from a falloff in demand from developed countries, notably America, Japan, and some in Europe.

Mr. Knapp cautions, though, that "if the price of oil doesn't come down really soon, you could see the U.S., as well as the whole world, dip into a recession later this year and in early 2009." Actually, given his projected boost in margin requirements for oil purchases, he thinks a recession can be avoided. This assumes, he points out, "we can weather the triple whammy, namely the downturn in housing, the credit crisis, and elevated energy prices."

The latest housing numbers, however, show continued weakness, with the backlog of single-family homes at the highest level in more than two decades. At the same time, April sales of existing homes fell for the eighth time in the past nine months as prices dropped 8% from a year ago. Still, Mr. Knapp sees some positive signs. He points, for example, to some pockets of recovery, increased affordability due to the decline in home prices, pent-up demand, and decent mortgage rates. Taking note, as well, of recent peppier figures on housing starts and permits, he reckons a housing recovery could kick off this summer.

As for ongoing credit worries, he thinks they may be overblown, given declining write-downs in the financial sector.

In arguing against a recession, Mr. Knapp holds out the possibility of a single quarter of negative growth in the gross domestic product sandwiched in between two quarters of puny GDP growth. A better-than-expected trade deficit in March suggests to him that first-quarter GDP will be revised upward to 1% growth or better from the initial estimated growth of 0.6%.

Relating his thinking to the likely direction of the stock market, Mr. Knapp observes that equities are basically attractive, assuming you burst the oil bubble, lower inflation expectations, and housing rebounds.

Technology stands out at the moment as his top-rated sector. What about those rampaging energy stocks? Despite the big gains, he views their valuations as reasonable, based on the current price of oil.

Gasoline prices are through the roof and Americans are angry. Someone must be to blame and the obvious villain is "Big Oil" with its alleged ability to gouge consumers and achieve unconscionable, "windfall" profits. Congress is in a vile mood, and has dragged oil industry executives before its committees for show trials, issuing predictable threats of punishment, e.g. a "windfall profits tax."

But if there is a villain in all of this, it is Congress itself. That venerable body has made it impossible for U.S. producers of crude oil to tap significant domestic reserves of oil and gas, and it has foreclosed economically viable alternative sources of energy in favor of unfeasible alternatives such as wind and solar. In addition, Congress has slapped substantial taxes on gasoline. Indeed, as oil industry executives reiterated in their appearance before the Senate Judiciary Committee on May 21, 15% of the cost of gasoline at the pump goes for taxes, while only 4% represents oil company profits.

To understand the depth of congressional complicity in the high price of gasoline, one must understand that crude oil prices explain 97% of the variation in the pretax price of gasoline. That price, which has risen to record levels, is set by the intersection of supply and demand. On the one hand, world-wide demand has accelerated mainly due to the rapid growth of China and India.

On the other hand, supply has been curtailed by the cartel-like behavior of foreign national oil companies, which control nearly 80% of world petroleum reserves. Faced with little competition in the production of crude oil, the members of this cartel benefit from keeping the commodity in the ground, confident that increasing demand will make it more valuable in the future. Despite its pious denunciations of the behavior of U.S. investor-owned oil companies (IOCs), Congress by its actions over the years has ensured the economic viability of the national oil company cartel.

It has done so by preventing the exploitation by IOCs of reserves available in nonpark federal lands in the West, Alaska and under the waters off our coasts. These areas hold an estimated 635 trillion cubic feet of recoverable natural gas – enough to meet the needs of the 60 million American homes fueled by natural gas for over a century. They also hold an estimated 112 billion barrels of recoverable oil – enough to produce gasoline for 60 million cars and fuel oil for 25 million homes for 60 years.

This doesn't even include substantial oil shale resources economically recoverable at oil prices substantially lower than those prevailing today. In an exchange between Sen. Orin Hatch (R., Utah) and John Hofmeister, president of Shell Oil Company during the May 21 Senate Judiciary Committee hearing, the point was made that anywhere from 800 million to two trillion barrels of oil are available from oil shale in Colorado, Utah and Wyoming.

If Congress really cared about the economic well-being of American citizens, it would stop fulminating against IOCs and reverse current policies that discourage, indeed prohibit, the production of domestic oil and natural gas. Even the announcement that Congress was opening the way for domestic production would lead to downward pressure on oil prices.

There is an historical precedent for such a step: Ronald Reagan's deregulation of domestic crude oil prices at the beginning of his first term. At the time, thanks to the decision by the Organization of Petroleum Exporting Countries (OPEC) to curtail output, the price of oil was at a level that in real terms is only now being matched. Domestic price controls ensured that the OPEC cartel would face little or no competition in the production of oil.

Price controls were exacerbated by other wrongheaded policies stimulated by the two "energy crises" of the 1970s. One of the most egregious was the infamous "windfall profits" tax, designed to punish oil companies for alleged profiteering. But since it applied to even newly discovered oil, its main impact was to discourage the exploration and drilling that would have increased oil supplies.

Although the energy problems of the 1970s were traceable to government policies, Reagan's decision to deregulate oil prices was ridiculed by policy makers, especially those who had served in the previous administration. For instance, Frank Zarb, who had been Jimmy Carter's "energy czar," predicted that decontrolling the price of crude oil would lead to gasoline prices of $10 a gallon. Instead, the world price of oil plummeted, helping to fuel the extraordinary economic growth of the 1980s.

Reagan's deregulation of crude oil prices created incentives for domestic producers to invest in exploration and to increase production. The threat of increased output by non-OPEC producers destroyed the discipline among OPEC members necessary to restrict production to maintain high prices. Facing the likelihood that an increase in supply would lead to lower future prices, OPEC producers increased output in the hopes of maximizing profits before prices fell. The cascading effect caused oil prices to tumble.

As in the 1970s, U.S. energy policies have essentially restricted the exploitation of domestic sources of energy. Curtailed supplies have combined with rapid, world-wide energy demand to increase the price of oil and other sources of energy. This provides leverage to foreign producers and threatens U.S. energy security. Freeing up domestic energy resources will do today what President Reagan's decision to deregulate oil prices in 1981 did then: cause oil prices to fall, thereby enhancing U.S. energy security.

Mr. Owens is a professor at the Naval War College in Newport, R.I., and editor of Orbis, the journal of the Foreign Policy Research Institute in Philadelphia.

Woof, I'am reading them, but at this point not feeling much better........Esp after the WSJ article posted today. Thats not too encouraging......though it could be if some real and positive action by our politicans would take place........Not holding my breath for that....... Hostage to oil/ gov.

And with a Democratic landslide in November it will only get far worse.

This is still the greatest country. It won't continue to be if BO is President. Foreigners like him because they know he will negotiate away our leadership position in the world so we can be "liked", and they, not us will be the better.

BO is a fool. And so are Americans if he wins. He will exacerbate our weaknesses. And that is why he is popular overseas. Plain and simple. Why else does our enemies love him.

Maybe it is better if he wins. Go the Jimmy Carter way again. Apparantly many people need to be reminded we will screw ourlseves. If McCain is Bush three than BO is Carter 2!

"The true villain in our having to cough up $60, $70 or $80 to fill our gas tanks is the U.S. Congress caught in the grip of environmental extremists. But if reality is too difficult to swallow, we can continue to blame and support the congressional attack on oil executives, turn food into oil and think of other crackpot "solutions."

***What assumptions do congressmen make about the American people? Do they assume that we're dumb or ill-informed about the energy problems we are experiencing? Every time there has been a huge spike in gasoline prices, Congress hauls oil company executives before their committees to accuse them of greed, obscene profits and price-fixing. One federal investigation after another of supposed oil company misconduct turns up nothing to substantiate congressional allegations. Unfortunately, the congressional hearings make front page news and lead the evening television news, but the results of federal investigations that follow are only casually mentioned deep in the body of newspapers and get little or no time on the evening television news. If news media people had an ounce of integrity, they would highlight the federal investigation findings that undermine congressional charges of oil company misconduct and they would question the congressmen who made those charges.

Americans might prefer heroes-and-villains explanations to problems to reality-based explanations. A politically satisfying explanation for today's $4 a gallon price, when it was less than $2 a gallon a couple of years ago, is because oil company executives have all of a sudden become greedy in their pursuit of "obscene" profits. As such, congressmen, as our heroes, should call these greedy men on the carpet and take sanctions against them in the forms of windfall profits tax, price controls and other measures to take away their ill-gotten gains -- never mind the effects of the 1980 windfall profits tax. According to the Congressional Research Service, the 1980 windfall profits tax had the effect of decreasing domestic production by 3 percent to 6 percent, thereby increasing American dependence on foreign oil sources by 8 percent to 16 percent.

Controlling the price of anything is very difficult and it can only be accomplished through the force of government, mostly by restricting supply. The U.S. Congress is a major player in oil supply restriction, and OPEC nations must be laughing all the way to the bank. Congress has banned energy exploration in 85 percent of our coastal waters. Ironically, China, in conjunction with Cuba, is drilling for oil nearer to our coastline than U.S. oil companies are permitted. According to "We don't have to take $4 gas prices -- we can drill," written by Sterling Burnett in the Houston Chronicle (5/21/08), "It is estimated that beneath America's coast lies enough oil to fuel 60 million cars in the United States for 60 years and enough natural gas to heat 60 million homes for 160 years. … If allowed access to American oil reserves in Alaska and off our coastline, American oil companies could increase our country's reserves an estimated fivefold, taking the United States from 11th place to fourth among the countries with proven oil reserves."

You say, "What about the environmental impact?" Contrary to the hysterical claims made by environmental extremists, caribou and other wildlife have expanded and flourished in and around Alaska's Prudhoe Bay, unaffected by the oil and gas development. What's more, Burnett points out that the "two leading environmental groups, the Audubon Society and the Nature Conservancy, have allowed oil and gas production on several of their most important and unique nature preserves."

Environmentalists come to their senses when non-drilling philosophy costs them something. It's two-faced hypocrisy. At times I've suggested that the best way to get oil exploration in the Alaska National Wildlife Reserve is to give the land to environmentalists. You can bet they wouldn't sit on billions of dollars of oil and gas.

The true villain in our having to cough up $60, $70 or $80 to fill our gas tanks is the U.S. Congress caught in the grip of environmental extremists. But if reality is too difficult to swallow, we can continue to blame and support the congressional attack on oil executives, turn food into oil and think of other crackpot "solutions."***

Dubai's Favorite SenatorsJune 10, 2008The first refuge of a politician panicked by rising prices is always to blame "speculators." So right on time for this election season, Congress has decided to do something about rising oil prices by shooting the messenger known as the energy futures market. Apparently this is easier than offending the Sierra Club by voting for more domestic energy supply.

Futures markets aren't some shadowy dangerous force, but are essentially a price discovery mechanism. They allow commodity producers and consumers to lock in the future price of goods, helping to hedge against future price movements. In the case of oil prices, they are a bet about supply and demand and the future rate of inflation. Democrats nonetheless now argue that these futures markets are generating the wrong prices for oil and other commodities.

And who are these "speculators" driving up prices? The futures market operator Intercontinental Exchange says that an increasing share of its customers are not financial houses but commercial firms that need to manage oil-price risks – refiners, airlines, and other major energy consumers. Another term for these "speculators" would be "American business."

Not ironically, the leaders of Capitol Hill's shoot-the-messenger caucus are among those most culpable for the lack of domestic oil supplies. Senator Maria Cantwell (D., Wash.) has been threatening to hold up appointments to the Commodity Futures Trading Commission until the CFTC increases regulation of oil trading. In the best tradition of bureaucratic self-protection, the CFTC's acting chief Walter Lukken has agreed to investigate.

Ms. Cantwell's recent press release on "outrageous energy prices" didn't mention her own contributions to the problem. According to the Almanac of American Politics, she "successfully worked the phones" in 2005 to round up enough colleagues to block drilling in the Alaskan wilderness. Ms. Cantwell has also backed a slew of mandates and subsidies that have helped to raise food prices by diverting corn and other crops to fuel. She even claims to have helped create the biofuels industry in her state.

Her counterpart in the House is Michigan's Bart Stupak, who claims special credit for a permanent ban on drilling in the Great Lakes and has also cast votes against exploration in Alaska and off the California coast. With $4 gasoline, this is a man in need of political cover as Michiganders head into the summer driving season. A spokesman says Mr. Stupak is hoping to roll out a new bill by the end of this week to require "additional reporting and oversight' in the oil futures markets.

Then there's New York Senator Chuck Schumer, another staunch opponent of new domestic oil supplies. Mr. Schumer has egged on the Federal Reserve's rate-cutting binge that has contributed so much to the oil price spike. But, with impeccable political timing, he now suspects "price manipulation by speculators" is the real cause of rising gas prices.

Mr. Schumer's answer is the "Consumer-First Energy Act," due for a cloture vote in the Senate today. Bundled with a windfall profits tax on oil companies, the plan also includes an increase in margin requirements for those who wish to trade oil futures. This would of course make it more expensive to trade in U.S. futures markets, which in a world of computerized, instantaneous trading means that those trades would merely move to markets overseas. As luck would have it, the Dubai Mercantile Exchange celebrated its first birthday last week with the launch of two new oil futures contracts that compete with those offered by American exchanges.

Leave aside the question of whether Mr. Schumer believes that the Dubai exchange, which is majority-owned by Middle Eastern governments, will offer more consumer protection than America's shareholder-owned exchanges. This is the same Chuck Schumer who warned in 2007 that heavy regulation threatens New York's pre-eminence in global finance. Along with Mayor Michael Bloomberg and former Governor Eliot Spitzer, Mr. Schumer introduced a long report on the threats facing New York with a short note that specifically mentioned Dubai as an increasingly formidable competitor. That of course was not an election year.

If Democrats won't believe futures traders, maybe they'll heed their biggest political funder. When Senator Cantwell invited hedge-fund billionaire George Soros to testify last week, she probably didn't expect the backer of left-wing causes to deviate from her market-manipulation narrative. But among other things, Mr. Soros noted that "Regulations may have unintended, adverse consequences. For instance, they may push investors further into unregulated markets which are less transparent and offer less protection."

Democrats will find that moving jobs to Dubai from New York and Chicago will not end the commodity inflation that they themselves have helped to create.

Yes the government should take over the oil industry and now convert hundreds of thousands of employees onto the Federal dole making them all into Democrat drones. Like most teachers and most other government employees. How convenient. Nothing like creating a whole sub nation within a nation whose interests lie in maintaining and expanding government to protect their jobs. Just another way of bribery for votes. McCain has got to stop this. We are no longer a *free* country. I can't believe the founders wanted this.

A bill introduced in Congress this week would "compel" oil and natural gas companies to produce from federal lands they are leasing. If only it were that easy to find and produce oil. Imagine, an act of Congress that could do what geology could not.

These lawmakers ask why oil and gas companies want more access to federal lands to drill if they aren't using all of the 68 million acres they already have? Anyone with even the most basic understanding of how oil and natural gas are produced – and this should include many members of Congress – knows that claims of "idle" leases are a diversionary feint.

A company bids for and buys a lease because it believes there is a possibility that it may yield enough oil or natural gas to make the cost of the lease, and the costs of exploration and production, commercially viable. The U.S. government received $3.7 billion from company bids in a single lease sale in March 2008.

However, until the actual exploration is complete, a company does not know whether the lease will be productive. If, through exploration, it finds there is no oil or natural gas underneath a lease – or that there is not enough to justify the tremendous investment required to bring it to the surface – the company cuts its losses by moving on to more promising leases. Yet it continues to pay rent on the lease, atop a leasing bonus fee.

In addition, if the company does not develop the lease within a certain period of time, it must return it to the federal government, forfeiting all its costs. All during this active exploration and evaluation phase, however, the lease is listed as "nonproducing."

Obviously, companies want to start producing from active fields as soon as possible. However, there are a number of time-consuming steps to be taken before they can do so: Delineation wells must be drilled to size the field, government permits must be obtained, and complex production facilities must be engineered and installed. All this takes considerable time, and during that time, the lease is also listed as "nonproducing."

Because a lease is not producing, critics tag it as "idle" when, in reality, it is typically being actively explored and developed. Multiply these real-world circumstances by hundreds or thousands of leases, and you end up with the seemingly damning but inaccurate figures our critics cite.

Our companies have made tremendous strides in developing cutting-edge exploration technology. But they are not magicians. They cannot produce oil or natural gas where it does not exist. A significant percentage of federal leases simply may not contain oil and natural gas, especially in commercial quantities.

As I've often said, the first step in our business is called "exploration" for a reason. Exploration is time consuming, very costly and involves a great deal of risk. Importantly, you see neither a drop of usable oil nor a cubic foot of natural gas while it is going on. But it is absolutely essential, and there is nothing "idle" about it. Without the exploration that took place years ago, less domestic oil and natural gas would be available today to meet consumer demand.

In reality, a lease is simply a block on a map, with no guarantee that it contains any resources. If all of them did, one could simply pay for the lease, haul in equipment and start pumping oil. But that only happens in fiction.

And it happens in the minds of those who use the undeveloped-lease argument as a smokescreen to mask their intent to keep America's vast energy resources locked up underground, despite increasingly strong consumer demand for oil and natural gas. For exploration to take place, our companies need access to the areas – offshore and onshore – that we know have the potential to produce the oil and natural gas consumers will need, if ours is to remain a viable economy in an increasingly competitive global marketplace.

Today's short-term need was yesterday's long-term opportunity. If Congress had acted on that opportunity years ago, America would not be in the energy bind it finds itself in today. Working with industry, Congress now has the opportunity to help secure America's energy future. It should not miss the chance again.

Mr. Cavaney is president and CEO of the American Petroleum Institute, the trade association that represents America's oil and natural gas industry.

I really got ask - what did W give up for this? I really got ask if the Saudis got nuclear technology for this. Any journalists looking at this. Something went on behind the scenes we don't know about.

***Saudi Arabia Boosts Oil Supply, May Pump More Later (Update2)

By Ayesha Daya and Glen Carey

June 22 (Bloomberg) -- Saudi Arabia may raise its oil production beyond a planned 200,000 barrel-a-day increase in July if the oil market requires extra supply, Saudi Oil Minister Ali al-Naimi told consumers at a summit in Jeddah.

Saudi Arabia's commitment to government and business leaders to pump 9.7 million barrels a day next month came after crude rose to a record $139.89 in New York on June 16. Saudi King Abdullah said at today's summit that his country, the world's biggest oil exporter, seeks ``reasonable'' prices. OPEC President Chakib Khelil said a Saudi boost is ``illogical'' because refiners don't need more crude.

The International Energy Agency estimates that world oil use this year will climb 800,000 barrels a day, or 1 percent, as demand climbs in emerging markets. Stagnating production from Russia and the North Sea and disruption in Nigeria are also contributing to higher prices, which have touched off strikes, riots and accelerating inflation in nations around the world.

``Saudi Arabia is prepared and willing to produce additional barrels of crude above and beyond the 9.7 million barrels per day, which we plan to produce during the month of July, if demand for such quantities materializes and our customers tell us they are needed,'' Naimi said.

Saudi Arabia's capacity will be 12.5 million barrels a day by the end of 2009 and may rise to 15 million after that if necessary, he said.

Speculators Blamed

The president of the Organization of Petroleum Exporting Countries, Khelil, blamed $135 oil on speculative investors, the subprime credit crisis and geopolitics, rather than a shortage of supply. Khelil, who is also Algeria's oil minister, today dismissed the argument voiced by consuming nations that possible supply shortages are driving up prices.

``The concern over future oil supply is not a new phenomenon,'' he told reporters in Jeddah. Asked if oil prices would fall after the meeting, he replied: ``I don't think so.''

The Saudi King and other producer-nation officials including Kuwaiti oil minister Mohammed al-Olaim also called for greater regulation on oil market investors. The U.S. Commodity Futures Trading Commission is currently investigating the role of index-fund investors in the doubling of oil prices during the past year.

OPEC itself is divided. While Saudi Arabia is boosting output, other OPEC members including Libya, Algeria, Iran, Venezuela and Qatar are opposed to higher production, saying refiners aren't asking for more crude.

Libya's top oil official, Shokri Ghanem, said after the meeting ended that the Saudi output boost wouldn't affect the oil price, and yesterday said his country may have to cut its own production in response to the Saudi move.

Venezuelan Oil Minister Rafael Ramirez, also asked whether the oil price was likely to fall after the Saudi move, said: ``I don't think so because it's not a problem of supply.''

Oil rose to $139.89 a barrel on June 16 as investors bought commodities to hedge against a weakening U.S. dollar and concern mounted that demand is growing faster than supply. Gasoline retail prices over $4 a gallon in the U.S. are raising concern that the economy may slip into recession. Crude oil for July delivery closed June 20 in New York at $134.62 a barrel.

U.S. Energy Secretary Bodman rejected calls to put greater control on markets, and said a shortage of supply was responsible for high prices. He disputed the view that speculators are leading the markets to record levels.

The market needs between 3 million and 4 million barrels a day of spare oil production capacity, compared with the 2 million barrels a day currently available, Bodman said. OPEC says the world's spare capacity is about 3 million barrels a day, with two-thirds of that in Saudi Arabia.

``Market fundamentals show us that production has not kept pace with growing demand for oil resulting in increasing, and increasingly volatile, prices,'' Bodman said in a speech today.

More Supply

Italy's Minister of Industry Claudio Scajola and Brazil's Energy Minister Edison Lobao were among consumer-nation officials attending the Jeddah summit that said more supply was needed to ease prices. ``We expect Saudi Arabia to open the taps,'' Austrian Economy Minister Martin Bartenstein said in an interview two days ago. ``One third of inflation in the euro zone comes from energy and inflation is now of importance.''

Speaking in Jeddah today, the Austrian minister said: ``We would like to see more oil on the market. That is the only action I can think of that can discourage the speculators.''

Adam Sieminski, chief energy economist at Deutsche Bank AG, and other analysts maintain that consumers will need to curtail demand before prices head lower. The biggest drop in prices in 11 weeks came on June 18, after the world's second-biggest oil consumer, China, raised gasoline, diesel and power prices to rein in energy use.

Saudi Arabia will increase production capacity to 12.5 million barrels a day of oil by the end of next year and could add a further 2.5 million barrels a day if needed, from some new giant fields, Naimi said.

Zuluf, Shaybah Fields

``The Saudi announcement of a possible increase in capacity to 15 million barrels a day is a robust statement; it would be a huge increase,'' ENI SpA Chief Executive Officer Paolo Scaroni said in an interview in Jeddah today. ``The world is worried about the shortage in spare capacity and any improvement will change this sentiment.''

The further daily capacity includes 900,000 barrels from the Zuluf field, 700,000 barrels from Safaniyah, 300,000 barrels from Berri, 300,000 barrels from Khurais and 250,000 barrels from Shaybah, Naimi said.

U.K. Prime Minister Brown said in Jeddah today he will open Britain's energy industry to investment from oil producing nations as a way of keeping a lid on crude prices and paying for measures to clean up the environment. Further talks may be held between producers and consumers this year in London, he said.

PARIS: An attack -- or even an attempted attack -- by Islamic extremists on Saudi Arabia's oil sector would have disastrous consequences on the world market and the price per barrel, analysts warn.

Of more than 700 people arrested in the course of the last six months in Saudi Arabia, dozens had been part of cells charged with preparing attacks against oil sites, according to authorities in Riyadh.

With the price per barrel rising constantly and the capacity to increase global production almost non-existent, apart from in Saudi Arabia, the world market has never been so vulnerable to an offensive by Jihadists in the kingdom, they said.

Also ReadàHigh food prices make oil sheikhs turn to farmingàReasons to love costly oilàOil will not fall below $100 a barrel: Morgan StanleyàTips to offset the effect of fuel price hikeàOil prices overvalued by at least 40%: EU

Michael Klare, head of the University of Massachusetts's peace and world security programme and author of the book "Resource Wars", said that even if an attack caused little damage, the impact would still be enormous.

"There would be a tremendous psychological effect because the market is already prepared to expect terrorist events like this. It would have an immediate effect on prices," he said.

"And if an attack actually damaged production or exploration, the effect would be even greater. The rise would be astronomical," he added.

Klare believes that a less significant attack would result in a price hike of no more than ten dollars a barrel.

"(But) if they managed to destroy a major refinery or a major loading facility and cut production that would have a dramatic impact. Prices would go to 200 dollars a barrel," he said.

The Saudi oil sector, which spends considerable sums on security, has been an Al-Qaeda target for years.

Osama bin Laden in December 2004 called on followers in an audio message to "aim your operations at oil production in Iraq and in the Gulf."

In February 2006 assailants using two booby-trapped cars tried to enter the huge Abqaiq complex, the biggest in the world, in the east of the kingdom.

When challenged they detonated the explosives, killing themselves and two guards.

Francis Perrin, editor-in-chief of Arab Oil and Gas magazine, said the current price of oil revealed the concern over the fragility of world supplies and the danger that in future supply will no longer satisfy demand.

"In such a context, an attack against oil installations in Saudi Arabia would have a considerable impact," he said, adding that Saudi Arabia played a unique role in the world market which was on a "knife-edge."

"It is the country possessing a bit less than a quarter of the reserves, it is the leader at the heart of OPEC (the Organization of Petroleum Exporting Countries), the number one in terms of unused capacity... It's the only country in the world of capable of producing more in the short term, in weeks," he said.

If an attack was carried out against minor installations, the impact would be significant, he said. But if an attack succeeded against more important installations, "the effect would be absolutely incalculable in terms of price," added Perrin.

Against this background Israeli threats of an air offensive against Iranian nuclear installations only add to the market's nervousness, said Klare.

"If such an attack is conducted, I think the Iranians will try to engineer terrorist attacks in Saudi Arabia, Kuwait, and Bahrain. They would do everything they can to create chaos in the international oil market... Prices would skyrocket," he said.

The President of the United States has prostrated himself for the second time in five months before the King of Saudi Arabia, pleading for more oil. Despite Mr. Bush’s inducements – an array of advanced, offensive arms; the promise of nuclear technology with which the Saudis can expect (like the North Koreans, Iranians, Pakistanis, etc.) to acquire the ultimate weapons; and U.S. help securing Saudi Arabia’s borders (something the President has declined to do at home) – the American plea was spurned. The contempt felt by the House of Saud was captured in its oil minister’s quip, “If you want more oil, buy it.”

The Senate rejected, by a vote of 56-42, an initiative offered by Republicans that called for opening the Arctic National Wildlife Refuge (ANWR) in Alaska and some offshore waters now closed to exploration and exploitation of their substantial oil reserves.

In addition, that chamber’s appropriations committee refused by a similar party-line vote to lift its moratorium on oil-shale production in Colorado. It seems that, if we want more oil, we will have to buy it at ever increasing prices from the Saudis and others even more unfriendly to this country’s national security and economic interests – like Venzuela’s Hugo Chavez or Russia’s Vladimir Putin, perhaps even Iran’s Mahmud Ahmadinejad.

One thing the Senate and House did agree upon, by overwhelmingly bipartisan majorities, was suspending purchases of oil to fill the remaining three percent of the capacity of the Strategic Petroleum Reserves. This action will have negligible (if any) impact on energy prices. But it will ensure that less oil will be available to us than would otherwise have been the case in the event, for example, the next terrorist attack on the Saudi oil infrastructure succeeds where others have failed and seriously disrupts world supplies.

Then there is the newly formed coalition, ostensibly spearheaded by the Grocery Manufacturers’ Association, that has launched a multi-million dollar lobbying effort aimed at discouraging the development of one alternative to oil: domestically produced or imported ethanol. Wrongly asserting that producing this transportation fuel from corn is largely responsible for rising food prices and the attendant global shortages, this instant grassroots (read, “astroturf”) coalition appears to want America to remain essentially dependent on oil. Wonder where the money for this campaign is coming from?

A. These actions – taken against the backdrop of soaring energy prices and the attendant hemorrhage of U.S. petrodollars to, among others, people who wish us ill – represent the sort of behavior in which only a nation utterly unserious about energy security could indulge.

The truth of the matter is that, no matter what we do, we are going to need oil for the foreseeable future. As a result, we should do our utmost to find it and exploit it in places that are either under our control (for example, near where the Cubans and Chinese are getting it off the coast of Florida) or at least friendly to us (notably, Canada, Mexico and Brazil).

It is equally axiomatic that, no matter what we do, we are almost certainly going to have less oil than we need, certainly at prices we can afford. The question is: Are we going to do something to meet the shortfall? Or are we simply going to allow the economy and security of the United States to bleed-out at the hands of the Saudi-led OPEC cartel?

The Set America Free Coalition – an initiative launched several years ago by unlikely array of national security-, environmental- and energy-minded people and organizations from across the political spectrum – is advancing practical, near-term alternatives to that unappetizing and unacceptable prospect.

At the moment, the Coalition is mounting its own campaign aimed at achieving in the immediate future, a simple yet far-reaching goal: Ensuring that each of the 17 million new cars added to America’s highways each year is capable of being powered by ethanol (from whatever source), methanol (ditto) or gasoline (or some combination thereof).

There are already some 6 million of these Flexible Fuel Vehicles (FFVs) on our roads today. Most of these are American-made (name another technology in which Detroit has a competitive advantage?) It costs less than $100 per car to equip new cars with this feature.

Ask yourself, and your elected representatives and would-be Presidents: As each of these cars will last, on average, roughly 17 years, do we want any more of them to be built the old way – namely able to use only gasoline? Can we responsibly continue for another generation to lock our transportation sector (the principal, and most profligate, consumer of imported oil) into dependence on oil substantially imported from unfriendly places?

Dr. Robert Zubrin – a leader of the Set America Free Coalition and author of the terrific new book, Energy Victory: Winning the War on Terror by Breaking Free of Oil – observes that at today’s oil prices, we are allowing the Saudis and their friends to impose the equivalent of a 40 percent income tax at a cost of approximately $3300 on every man woman and child in this country. We literally cannot afford to allow such lunacy to continue.

Sooner or later, Congress will adopt an Open Fuel Standard requiring every new car sold in America to be an FFV. The effect will be, in short order, to create an immense and highly competitive market for alternative, “Freedom Fuels” that we can make here or buy from friends. That, in turn, will set America free by beginning to end its cars’ present addiction to oil. Why wait any longer?

“If each Muslim throws a bucket of water on Israel,” said the late Ayatollah Khomeini, “Israel will be erased.” This immortal sentiment, and surreal image, captures the essence of the Islamic Republic of Iran’s public diplomacy campaign these last four years, one of the most effective uses of “soft power” in recent memory.

President Mahmoud Ahmadinejad’s threats to destroy Israel have so captured the hearts and minds of the Arab masses that they are too distracted to understand that the Persians are primarily coming after them. And the princes and presidents-for-life who rule the Arabs dare not speak the truth since they have promised for sixty years now to rectify the historical error that led to the establishment of the Zionist entity. With the reflexive Arab humiliation at the failure to annihilate a UN member state, the Khomeinists offer at least hope: if you can’t throw Israel into the sea, then take the sea to Israel — and bring your bucket.

So, while Ahmadinejad — the regime’s dark sorcerer, carny barker, and bearded lady rolled into one — has talked of making Israel disappear, he has effectively dropped his cloak over the rest of the Middle East to hide it from view. Even Washington doesn’t seem to have noticed that Iran has pulled a three-card monte trick with a vital American interest — the Persian Gulf.

To be sure, Ahmadinejad is a messianic obscurantist whose vicious threats should not be taken lightly. But Israel is not the main issue here, nor for that matter is the regime’s nascent nuclear program. For these are merely aspects, albeit important ones, of Iran’s project for the entire Middle East, a revolutionary putsch against the established order. And since Washington for over half a century has underwritten that order, from the eastern Mediterranean to the Persian Gulf, which Martin Kramer has called an “[1] American lake,” the Iranian project by definition means to drive the U.S. from the region. And that’s the main event: not Israel, which has a nuclear deterrent, but the Gulf Arabs, who don’t, and their oil, a vital American interest.

Just as it would be ignoble for the world’s superpower to [2] assign an attack on Iran’s nuclear program to the Israelis, neither should Washington leave it up to Israel to counter Ahmadinejad’s rhetorical onslaught. It is the prerogative of a superpower to formulate strategy, tasks that Washington has so far botched. Consider Annapolis, Secretary of State Condoleezza Rice’s redundant effort to convince the Arabs and Israelis of the obvious — that they have a common foe in Iran — and then reward Arab inaction by demanding concessions from Israel on the peace process.

Not surprisingly, the Israelis are confused and frustrated and the Arabs are hardly more impressed. Indeed Arab regime confidence in Washington’s ability to stop the Iranians seems to be at an all-time low. Four years ago U.S. ally King Abdullah of Jordan was stirring up the sectarian hornet’s nest by warning of a Shia crescent; today Saudi Arabia’s King Abdullah is hosting unprecedentedly Shia-friendly interfaith conferences in order to pave the way for an accommodation between the Sunnis and those who are awaiting the return of the twelfth imam, a comity that does not need Washington as a guarantor.

And there is no American clarity on the horizon either, for so far neither U.S. presidential candidate has indicated that he will be any more effective than the Bush administration.

Senator Obama says that he’s the man who would speak with the Iranians — apparently ignorant of the fact that every man who has sat in the Oval Office since the 1979 takeover of the U.S. embassy in Tehran has tried to engage the IRI. While this puerile boast richly merits the derision of his opponents, the fact is that Senator McCain has not shown that his Iran policy consists of much more than proving that he is a steadfast friend of Israel. Is it possible that the two men running for this country’s highest office do not know what is at stake?

Perhaps, but it seems likely that policymakers won’t talk about Gulf energy resources because it is one place where the Republicans are as vulnerable as the Democrats are to the inanities of the left. What can the slogan “no blood for oil” possibly mean in the real world? That we won’t lift a finger to ensure that foodstuffs and other essential items are moved in a timely and inexpensive manner from one part of this large country to another? That we’ll just roll over and play dead if our geographic and therefore our social mobility is circumscribed by fuel prices set by Iran? That we won’t fight at all since the fact that all of American life, society, culture, and commerce is organized around the free flow of the affordable energy resources that also sustain global markets is of absolutely no consequence to those of pure conscience?

The question then is not what the next president of the United States intends to do about Iran, but which candidate will treat the American electorate like adults and speak plainly, maybe something like this:

“We have been at war for over five years now with one goal of our fight being to bring freedom to other nations and peoples around the world. But now it is time to speak of our freedoms and our way of life, and how we intend to preserve them.

“I would not be running for this office if I did not have full faith and confidence not only in the strength and resilience of the American people but also in our native genius and creative energy, a living tradition that you and I must stand in awe of as it reaches from Bill Gates back to Benjamin Franklin and thus ties us to our roots in our forefathers, the founders of our great nation. This is our vivid legacy and thus I have no doubt that in due course we will develop a reliable and affordable substitute for fossil fuels. Who knows but that inventors are not already on the verge of a breakthrough? But perhaps we are not so close; maybe the talent who will usher in a new age of cheap and clean energy has just gone off to summer camp with her friends — in a school bus consuming diesel fuel at more than $5 a gallon. That is to say, there are yet harder times ahead for all of us, and surely some will only find warm consolation in the prospect of our children reaping the great benefits of their parents’ courageous sacrifice in relinquishing our position in the Persian Gulf.

“That, my fellow Americans, is one option before us. The other is to do whatever it takes to secure and sustain the privilege won and bargained for by President Franklin D. Roosevelt some sixty years ago and asserted and exercised by every American government since that time — our position in the Persian Gulf. This hard choice will almost certainly mean some form of military action against the Islamic Republic of Iran.”

Losing the Persian Gulf to a fanatical, terror-supporting regime that threatens all its neighbors, Israeli and Arab alike, would do untold damage to the U.S. economy and world markets; and by paving the way for nuclear proliferation in an extremely volatile part of the world where states typically use terrorist organizations to advance their strategic goals, our exit would entail a major threat to U.S. national security. The costs of relinquishing our position in the Gulf would be virtually indistinguishable from losing a world war.

OK according to the left wackos we should not drill offshore because it could contaminate a "sensitive" ecosystem. So lets promote biofuels and cause food shortages and accelerate deforestation.

And then we have the Bo quack saying we should not drill offshore because we cannot "drill our way out of this" (talking point) and because that will take too long. Yet what he proposes will take far longer.

Dems retreat on energy, “wait for the wind”POSTED AT 10:45 AM ON JULY 8, 2008 BY ED MORRISSEY

Democrats in Congress promised to make energy policy a high priority when they returned after the Independence Day break. Instead, they have quietly scrubbed the schedule of any votes on their energy bill, afraid Republicans will make them vote on increased domestic oil production and force them to choose between popular sentiment for drilling and their environmentalist allies. Their strategy? Well, the Hill chooses a good quote:

“Right now, our strategy on gas prices is ‘Drive small cars and wait for the wind,’ ” said a Democratic aide.

Before the break, Democrats heralded two bills that supposedly showed their leadership on energy: an anti-speculator measure and a “use it or lose it” bill that forced oil companies to drill on federal leases — whether or not they had found oil yet — or lose the leases immediately. They attacked Republicans who opposed both bills as oil-company lackeys, but the truth is that neither bill produces a single drop of oil to solve the supply crisis.

Now, both bills have disappeared off of the legislative calendar, and the Republicans have ideas of their own. Politico reports that Mitch McConnell has a plan to peel off moderate Democrats in the Senate to get approval for drilling by combining the effort with conservation mandates. He already has five Democrats ready to vote for more drilling, and if he can find a few more, he can effectively sideline the Slip-Up from Searchlight and keep him from getting ill:

GOP senators believe that a number of moderate Democrats would be open to legislation that balances increased energy exploration with conservation. If they’re right, House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) could lose their grip on energy policy, and the Republicans could score a major coup on the No. 1 issue on the minds of voters.

At least five Senate Democrats support more domestic oil and gas exploration, and McConnell is sweetening the deal to make the sale to other moderates: The Kentucky Republican is pushing a package of incentives to boost conservation as well as a measure creating stricter enforcement of commodities markets in exchange for more offshore oil and gas drilling.

Moderate Democrats have now begun asking for a “Gang of 14″ on energy. Ben Nelson (D-NE) has taken the lead in this demand, and he has nine other Senators from both parties willing to join him. This amounts to a rebellion against Harry Reid and his knee-jerk opposition to increased domestic production of oil and coal. His “sick” speech may have been the last straw for Democrats who see the American public demanding more domestic production and recognize the political danger that approaches in November for obstructionists.

Of course, the Democrats always have the option of going into November with the slogan, “Drive smaller cars and wait for the wind.” I’m sure we’ll see television ads and bumper stickers highlighting that strategy. Unfortunately for the Democrats, they will be produced by Republicans to demonstrate the utter bankruptcy of Democratic energy policy.

One of the benefits of being around a long time is that you get to know a lot about certain things. I'm 80 years old and I've been an oilman for almost 60 years. I've drilled more dry holes and also found more oil than just about anyone in the industry. With all my experience, I've never been as worried about our energy security as I am now. Like many of us, I ignored what was happening. Now our country faces what I believe is the most serious situation since World War II.

The problem, of course, is our growing dependence on foreign oil – it's extreme, it's dangerous, and it threatens the future of our nation.

Martin Kozlowski Let me share a few facts: Each year we import more and more oil. In 1973, the year of the infamous oil embargo, the United States imported about 24% of our oil. In 1990, at the start of the first Gulf War, this had climbed to 42%. Today, we import almost 70% of our oil.

This is a staggering number, particularly for a country that consumes oil the way we do. The U.S. uses nearly a quarter of the world's oil, with just 4% of the population and 3% of the world's reserves. This year, we will spend almost $700 billion on imported oil, which is more than four times the annual cost of our current war in Iraq.

In fact, if we don't do anything about this problem, over the next 10 years we will spend around $10 trillion importing foreign oil. That is $10 trillion leaving the U.S. and going to foreign nations, making it what I certainly believe will be the single largest transfer of wealth in human history.

Why do I believe that our dependence on foreign oil is such a danger to our country? Put simply, our economic engine is now 70% dependent on the energy resources of other countries, their good judgment, and most importantly, their good will toward us. Foreign oil is at the intersection of America's three most important issues: the economy, the environment and our national security. We need an energy plan that maps out how we're going to work our way out of this mess. I think I have such a plan.

Consider this: The world produces about 85 million barrels of oil a day, but global demand now tops 86 million barrels a day. And despite three years of record price increases, world oil production has declined every year since 2005. Meanwhile, the demand for oil will only increase as growing economies in countries like India and China gear up for enhanced oil consumption.

Add to this the fact that in many countries, including China, the government has a great deal of influence over its energy industry, allowing these countries to set strategic direction easily and pay whatever price is needed to secure oil. The U.S. has no similar policy, because we thankfully don't have state-controlled energy companies. But that doesn't mean we can't set goals and develop an energy policy that will overcome our addiction to foreign oil. I have a clear goal in mind with my plan. I want to reduce America's foreign oil imports by more than one-third in the next five to 10 years.

How will we do it? We'll start with wind power. Wind is 100% domestic, it is 100% renewable and it is 100% clean. Did you know that the midsection of this country, that stretch of land that starts in West Texas and reaches all the way up to the border with Canada, is called the "Saudi Arabia of the Wind"? It gets that name because we have the greatest wind reserves in the world. In 2008, the Department of Energy issued a study that stated that the U.S. has the capacity to generate 20% of its electricity supply from wind by 2030. I think we can do this or even more, but we must do it quicker.

My plan calls for taking the energy generated by wind and using it to replace a significant percentage of the natural gas that is now being used to fuel our power plants. Today, natural gas accounts for about 22% of our electricity generation in the U.S. We can use new wind capacity to free up the natural gas for use as a transportation fuel. That would displace more than one-third of our foreign oil imports. Natural gas is the only domestic energy of size that can be used to replace oil used for transportation, and it is abundant in the U.S. It is cheap and it is clean. With eight million natural-gas-powered vehicles on the road world-wide, the technology already exists to rapidly build out fleets of trucks, buses and even cars using natural gas as a fuel. Of these eight million vehicles, the U.S. has a paltry 150,000 right now. We can and should do so much more to build our fleet of natural-gas-powered vehicles.

I believe this plan will be the perfect bridge to the future, affording us the time to develop new technologies and a new perspective on our energy use. In addition to the plan I have proposed, I also want to see us explore all avenues and every energy alternative, from more R&D into batteries and fuel cells to development of solar, ethanol and biomass to more conservation. Drilling in the outer continental shelf should be considered as well, as we need to look at all options, recognizing that there is no silver bullet.

I believe my plan can be accomplished within 10 years if this country takes decisive and bold steps immediately. This plan dramatically reduces our dependence on foreign oil and lowers the cost of transportation. It invests in the heartland, creating thousands of new jobs. It substantially reduces America's carbon footprint and uses existing, proven technology. It will be accomplished solely through private investment with no new consumer or corporate taxes or government regulation. It will build a bridge to the future, giving us the time to develop new technologies.

The future begins as soon as Congress and the president act. The government must mandate the formation of wind and solar transmission corridors, and renew the subsidies for economic and alternative energy development in areas where the wind and sun are abundant. I am also calling for a monthly progress report on the reduction in foreign oil imports, as well as a monthly progress report on the state of development of natural gas vehicles in this country.

We have a golden opportunity in this election year to form bipartisan support for this plan. We have the grit and fortitude to shoulder the responsibility of change when our country's future is at stake, as Americans have proven repeatedly throughout this nation's history.

How Free Trade Can Help Solve the Energy CrisisBy ROBERT MCFARLANE and GEORGE PHILIPPIDISJuly 26, 2008; Page A9

The unprecedented escalation in oil and food prices is a clear and present danger to our economy and national security. The root cause of this crisis is our dependence on a single commodity, oil, for transportation -- we burn 145 billion gallons of gasoline a year. The only permanent solution is diversity in our fuel supply to ensure competition and choice in the marketplace.

While a number of alternatives to oil are being developed, we already have one strategic solution at our disposal: biofuels, both domestic and from Latin America.

Biofuels like ethanol and biodiesel are cheaper than fossil fuels, and will become even cheaper if we eliminate the senseless tariff on ethanol imports from Brazil. Ethanol can be used safely as a 10% blend with gasoline in all existing cars, and as an 85% blend in the increasing number of flexible-fuel cars on our roads. That means a 10% to 85% potential drop in gasoline use and, hence, freedom from the oil stranglehold.

The public has been bombarded with lies and half-truths about biofuels, especially in the last six months. Americans should realize that biofuels are superior to fossil fuels. Biofuels are renewable, nontoxic and biodegradable. They are also beneficial to the automobile engine, the environment and the economy.

Biofuels are available today by the billions of gallons from a variety of sources: corn, sugarcane and soon from cellulosics. Cellulosic ethanol promises to dramatically boost domestic production in the near future. In the meantime, sugarcane ethanol already produced in Latin American sugar mills can become a key U.S. fuel supply.

Cellulosic biomass, in the form of existing agricultural and wood waste, is abundant (over a billion tons annually), inexpensive and requires no additional land. It has no food or feed value and therefore no effect on food availability and prices. A number of technologies are pursued for production of cellulosic ethanol and other biofuels, such as butanol and biodiesel. Most likely there will be no single technology winner. Rather, technologies will be adapted to the particular characteristics of local biofuel feedstocks.

Lower fuel prices will come only with an ample supply of alternative fuels. Cellulosic ethanol can extend corn ethanol's potential of 15 billion gallons per year, but it will not happen overnight. Resolving commercialization issues, building a large number of plants, and ramping up cellulosic ethanol production to billions of gallons will require a number of years.

To quickly boost its biofuel supply, the U.S. should partner with Latin America. Sugarcane ethanol from Brazil, Colombia, Peru and Central America should become an integral part of the U.S. energy strategy. An increase in Latin American cane ethanol capacity is the fastest, most cost-effective and lowest-risk strategy to secure abundant ethanol fuel. The U.S. needs Latin America for energy security, and Latin America needs the U.S. for capital and technology infusion. It's a classic win-win partnership -- provided U.S. trade barriers to sugarcane ethanol are eliminated.

Biofuel production is sustainable. The U.S. corn ethanol industry is investing in technology improvements to reduce land demand through higher productivity and to minimize its carbon footprint. Cellulosic ethanol will come from existing waste materials, not additional land.

Still, both corn and cellulosic ethanol can learn sustainable business lessons from Brazil. Its sugar mills have become biorefineries that co-produce sugar, ethanol and electricity in a renewable fashion, thus satisfying food, fuel and energy needs at the same time. The plants are self-powered by renewable energy derived from cane fiber and other biomass. As a result, Brazilian ethanol today is cost-competitive with oil at just $70 a barrel ($45 a barrel before the dollar weakened) without government subsidies -- a significant price advantage over gasoline.

The U.S. should immediately pursue a multifaceted biofuels strategy. First, while the corn industry improves productivity and sustainability, the U.S. should treat the commercialization of cellulosic technologies as a matter of national security -- a new Manhattan Project deserving all the necessary resources to accelerate deployment.

Second, the U.S. should pursue closer energy integration with Latin America though regulatory convergence and open biofuels trade, thus encouraging private investment in sugarcane ethanol production. This is the fastest and most efficient means to boost ethanol availability within three to four years, and displace gasoline use to an extent significant enough to cause oil demand and prices to drop.

Third, consumers should be educated and financially incentivized to switch to flexible-fuel vehicles, creating demand for mass production of such vehicles, which will dramatically cut U.S. dependence on foreign oil.

Energy security can not be achieved with a silver bullet. It is not a competition between corn ethanol and sugarcane ethanol or between biofuels and plug-in hybrids. The sooner we realize that U.S. energy security needs all of the above, the sooner our country will be able to commit to a coherent long-term energy policy. U.S. and Latin American biofuels are the kick-start needed to break oil's unbearable monopoly in transportation fuels.

Mr. McFarlane served as President Ronald Reagan's national security advisor (1983-85). Mr. Philippidis is energy director at Florida International University in Miami.

This week in Washington, House Republicans will try to produce a little political heat from rising energy prices. They will attempt to block Congress from adjourning for its summer recess if Democrats don’t allow an up or down vote on the GOP energy plan, which includes expanded drilling in the Outer Continental Shelf (OCS). House procedures -- which heavily favor the majority party -- will allow the Democrats to thwart those efforts, but Republicans can claim the issue: Congress will leave town without an up or down vote on expanded OCS drilling. Republicans hope movement in public opinion in favor of offshore drilling, spurred by record gasoline prices, will produce a new and effective line of political attack.

The GOP hypothesis draws some support in at least one Senate race. Former Republican Congressman Bob Schaffer has made progress in his contest against U.S. Rep. Mark Udall in Colorado, according to the most recent polling. What accounts for the GOP’s recent improvement? It’s gasoline prices – and more specifically, the stark differences between the two candidates on drilling policies. Voters apparently now see a much clearer connection between extreme environmental policies – like banning all offshore drilling – and pain at the pump. The last two independent polls show the race moving from about a 10-point Udall advantage to a near dead heat.

The Rasmussen numbers show a particularly strong shift among swing voters: “Among unaffiliated voters, Udall leads by just four percentage points. A month ago, he held a twenty-one point lead among these voters." You can read the full Rasmussen Colorado poll report here.

This piece in today’s Washington Times underscores how Republican Schaffer has transformed his support for drilling from a political liability to an electoral asset.

Record gasoline prices linked with what House Republican leader John Boehner calls the “Drill Nothing Congress” could fuel the political engines of many Republican congressional candidates this fall.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth. Added to cato.org on August 14, 2008

If you had to bet whether the price of oil would be higher or lower 10 years in the future, what would you say? Some argue that the world is running out of low-cost oil and that oil prices will get higher and higher. Others argue that the current high price of oil will cause a flood of new oil, much of it from nonconventional sources; hence, prices will fall significantly (provided the political class in Washington, D.C., does not continue its energy and environmental death march policies).

The case for much lower oil prices is as follows. There are hundreds of years of oil supplies (at present and projected consumption levels) if oil in oil sands and shale is properly included in reserves. In some places, such as Saudi Arabia and Iraq, there is still much low-cost oil ($15 a barrel or even less) that can be produced for decades, but not in an amount sufficient to meet the world's demand; hence, much higher-cost oil is also pumped. This higher-cost oil includes much of the offshore oil (the huge cost of the mammoth drilling rigs has to be amortized over each barrel of oil produced) and on-shore oil in hard-to-reach places and/or produced from low-production wells.

Oil reserves are largely a function of price. Global proven reserves of conventional oil obtainable at prices of less than $40 per barrel are estimated at more than 1.3 trillion barrels, with much of it concentrated in the Middle East. Additionally, reserves of so called "heavy oil," the largest reserves of which are in Venezuela's Orinoco area, are estimated at 1.2 trillion barrels, and most of this could probably be recovered for less than $50 per barrel. The reserves of oil sands, which are actively being mined in Canada's Alberta Province, are estimated to be 1.8 trillion barrels. Experts estimate that much of this can be produced for $45 per barrel or less. Global reserves of oil shale are estimated at more than 3.3 trillion barrels, with 70 percent in the United States (primarily in Colorado, Utah and Wyoming).

Shell Oil Co. last year announced it has developed a process for extracting the oil from the shale, without mining, at a price of roughly $35 per barrel. The United States also has the world's largest reserves of coal — enough for hundreds of years of production at present levels. Coal also can be turned into liquid petroleum (as the Germans and South Africans proved decades ago). Current estimates of the conversion cost are as low as $35 per barrel. Does it seem a bit odd that the current price of oil is more than twice the cost of producing all the oil the world presently needs and will need long into the future? The reason the price is so high is that the supply has been artificially constrained by governments. Most (88 percent) of the conventional oil reserves are owned by governments, and these governments have underinvested in new production. As is well-known, the U.S. government has restricted offshore and onshore drilling, shale development, and coal conversion.

Some politicians argue, even if the U.S. government started to allow increased production, that it would be seven to 10 years or more before there would be additional output. This is nonsense. Oil wells can be drilled at an average rate of 1,000 feet or so per day, which means that the average U.S. well can be drilled in a week. It does take a few weeks to set up the pump and install the separation tanks, etc., but new land wells can be producing within months, even if the product has to be trucked rather than piped away.

Drilling in the Arctic National Wildlife Refuge in Alaska would not take all that long for some production to get started. Politicians often confuse the time it takes to get peak production from a field as compared to some production — each additional well takes time, plus the necessary new piping collection infrastructure for each additional well.

Offshore wells do take a lot longer, but most of the time involved is the government permitting process, not the physical production of the rigs, drilling and so forth. If the government gave a full green light to production of oil shale in the Rocky Mountains, it might take several decades to reach full production, but some production would be accomplished in the next couple of years.

The very same politicians who claim we cannot increase oil production quickly are often the same ones who tell us we need to move to alternative forms — windmills and solar, etc. — without seeming to understand these desirable technologies will take far more time to meet the goals of "energy independence" than ramping up oil production. Speaker of the House Nancy Pelosi said she would not allow a vote on more drilling because she wanted "to save the planet," without seeming to understand, if increased oil production does not take place in the United States with all its environmental safeguards, it will take place where U.S. environmental law cannot be enforced — and that is not healthy for the planet.

Fortunately, the people are beginning to understand they are paying twice more for a gallon of gasoline than is necessary, and the global environment is not benefiting. Less expensive energy and a cleaner environment are most likely to be achieved quickly not with alternative energy sources but with an alternative set of congressional leaders.